Hostname: page-component-8448b6f56d-mp689 Total loading time: 0 Render date: 2024-04-24T07:04:47.395Z Has data issue: false hasContentIssue false
  • English
  • Français

THE MACROECONOMIC DYNAMICS OF DEMOGRAPHIC SHOCKS

Published online by Cambridge University Press:  24 March 2006

BEN J. HEIJDRA  and
JENNY E. LIGTHART
BEN J. HEIJDRA
Affiliation:
University of Groningen
JENNY E. LIGTHART
Affiliation:
Tilburg University and University of Groningen
Get access Rights & Permissions [Opens in a new window]

Abstract

The paper employs an extended Yaari-Blanchard model of overlapping generations to study how the macroeconomy is affected over time by various demographic changes. It is shown that a proportional decline in fertility and death rates has qualitatively similar effects to capital income subsidies; both per capita savings and per capita consumption increase in the new steady state. A drop in the birth rate, although keeping the death rate constant, reduces per capita savings, but increases per capita consumption if the generational turnover effect is dominated by the intertemporal labor supply effect. If the generational turnover effect is sufficiently strong, however, a decline in the birth rate may, contrary to standard results, give rise to an increase in per capita savings. Finally, a fertility rate reduction that leaves unaffected the rate of generational turnover is shown to have effects qualitatively similar to those of a fall in public consumption. Both per capita savings and per capita output decline, but per capita private consumption rises.

Keywords

Overlapping GenerationsBlanchard ModelDemographic ShocksFertility RateTransition EffectsIntertemporal Labor Supply
Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 10 , Issue 3 , June 2006 , pp. 349 - 370
Copyright
© 2006 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Auerbach A.J. and L.J. Kotlikoff 1987 Dynamic Fiscal Policy. Cambridge: Cambridge University Press.
Auerbach A.J., J. Cai, and L.J. Kotlikoff 1991 U.S. demographics and saving: predictions of three savings models. Carnegie-Rochester Conference Series on Public Policy 34, 135– 156.Google Scholar
Auerbach A.J., L.J. Kotlikoff, R.P. Hagemann, and G. Nicoletti 1989 The economic dynamics of an aging population: The case of four OECD countries. OECD Economic Studies 12, 97– 130.Google Scholar
Becker G.S. and R.J. Barro 1988 A reformulation of the economic theory of fertility. Quarterly Journal of Economics 108, 1– 25.Google Scholar
Blanchard O.-J. 1985 Debts, deficits, and finite horizons. Journal of Political Economy 93, 223– 247.Google Scholar
Bloom D.E., D. Canning, and B. Graham 2003 Longevity and life cycle savings. Scandinavian Journal of Economics 105, 319– 338.Google Scholar
Bovenberg A.L. 1993 Investment promoting policies in open economies: The importance of intergenerational and international distributional effects. Journal of Public Economics 51, 3– 54.Google Scholar
Bovenberg A.L. and B.J. Heijdra 1998 Environmental tax policy and intergenerational distribution. Journal of Public Economics 67, 1– 24.Google Scholar
Brooks R. 2002 Asset market effects of the baby boom and social security reform. American Economic Review 92, 402– 406.Google Scholar
Buiter W.H. 1988 Death, birth, productivity growth and debt neutrality. Economic Journal 98, 279– 293.Google Scholar
Cutler D., J. Poterba, L. Sheimer, and L. Summers 1990 An aging society: opportunity or challenge? Brookings Papers on Economic Activity 1, 1– 73.Google Scholar
Diamond P.A. 1965 National debt in the neoclassical growth model. American Economic Review 55, 279– 293.Google Scholar
Elmendorf D.W. and L.M. Sheiner 2000 Should America save for its old age? Fiscal policy, population aging and national savings. Journal of Economic Perspectives 14, 57– 74.Google Scholar
Group of Ten 1998 The Macroeconomic and Financial Implications of Aging Populations, Report of a Working Party of the Group of Ten Deputies on the Aging of Populations. http://www.bis.org/publ/gten04.pdf.
Heijdra B.J. and J.E. Ligthart 2000 The dynamic macroeconomic effects of tax policy in an overlapping generations model. Oxford Economic Papers 52, 677– 701.Google Scholar
Heijdra B.J. and J.E. Ligthart 2002 Tax policy, the macroeconomy, and intergenerational distribution. IMF Staff Papers 49, 106– 127.Google Scholar
Heijdra B.J. and J.E. Ligthart 2004 The macroeconomic dynamics of demographic shocks: mathematical appendix. University of Groningen. http://www.heijdra.org/demoapp.pdf.
Judd K.L. 1982 An alternative to steady state comparisons in perfect foresight models. Economics Letters 10, 55– 59.Google Scholar
McMorrow K. and W. Röger 2003 Economic and financial market consequences of ageing populations. European Commission Economic Paper No. 182, European Commission, Brussels.
Momota A. and K. Futagami 2000 Demographic transition pattern in a small country. Economics Letters 67, 231– 237.Google Scholar
Ríos-Rull J.-V. 2001 Population changes and capital accumulation: the aging of the baby boom. The B.E. Journals in Macroeconomics No. 1, Article 7.Google Scholar
Samuelson P.A. 1958 An exact consumption-loan model of interest with or without the social contrivance of money. Journal of Political Economy 66, 467– 482.Google Scholar
United Nations 2003 World Population Prospects: The 2002 Revision Population Database. http://www.un.org/esa/population/unpop.htm.
Weil P. 1989 Overlapping families of infinite-lived agents. Journal of Public Economics 38, 183– 198.Google Scholar
Yaari M.E. 1965 Uncertain lifetime, life insurance and the theory of the consumer. Review of Economic Studies 32, 137– 150.Google Scholar