Ageing, Government Budgets, Retirement, and Growth

33 Pages Posted: 23 Feb 2011

See all articles by Martín Gonzalez-Eiras

Martín Gonzalez-Eiras

University of Copenhagen

Dirk Niepelt

University of Bern - Department of Economics

Date Written: February 22, 2011

Abstract

We analyze the short and long run effects of demographic ageing - increased longevity and reduced fertility - on per-capita growth. The OLG model captures direct effects, working through adjustments in the savings rate, labor supply, and capital deepening, and indirect effects, working through changes of taxes, government spending components and the retirement age in politico-economic equilibrium. Growth is driven by capital accumulation and productivity increases fueled by public investment. The closed-form solutions of the model predict taxation and the retirement age in OECD economies to increase in response to demographic ageing and per-capita growth to accelerate. If the retirement age were held constant, the growth rate in politico-economic equilibrium would essentially remain unchanged, due to a surge of social security transfers and crowding out of public investment.

Keywords: ageing, government budgets, retirement, growth

JEL Classification: E62, H50, J26

Suggested Citation

Gonzalez-Eiras, Martín and Niepelt, Dirk, Ageing, Government Budgets, Retirement, and Growth (February 22, 2011). CESifo Working Paper Series No. 3352, Available at SSRN: https://ssrn.com/abstract=1766384 or http://dx.doi.org/10.2139/ssrn.1766384

Martín Gonzalez-Eiras

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

Dirk Niepelt (Contact Author)

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001
Switzerland

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