Income Growth in the 21st Century: Forecasts with an Overlapping Generations Model

CORE Discussion Paper No. 2007/43

34 Pages Posted: 29 Aug 2007

See all articles by David de la Croix

David de la Croix

Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES); Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Frédéric Docquier

Université catholique de Louvain; CREAM, Centre for Research on Environmental Appraisal & Management, UK; IZA Institute of Labor Economics

Philippe Liégeois

Centre for European Policy Studies (CEPS)

Date Written: July 2007

Abstract

We forecast income growth over the period 2000-2050 in the US, Canada, and France. To ground the forecasts on relationships that are as robust as possible to changes in the environment, we use a quantitative theoretical approach which consists in calibrating and simulating a general equilibrium model. Compared to existing studies, we allow for life uncertainty and migrations, use generational accounting studies to link taxes and public expenditures to demographic changes, and take into account the interaction between education and work experience. Forecasts show that growth will be weaker over the period 2010-2040. The gap between the US and the two other countries is increasing over time. France will catch-up and overtake Canada in 2020. Investigating alternative policy scenarios, we show that increasing the effective retirement age to 63 would be most profitable for France, reducing its gap with the US by one third. A decrease in social security benefits would slightly stimulate growth but would have no real impact on the gap between the countries.

Keywords: Aging, Forecast, Computable General Equilibrium, Education, Experience

JEL Classification: D58, E6, H55, J11, O40

Suggested Citation

de la Croix, David and Docquier, Frédéric and Liégeois, Philippe, Income Growth in the 21st Century: Forecasts with an Overlapping Generations Model (July 2007). Available at SSRN: https://ssrn.com/abstract=1010615 or http://dx.doi.org/10.2139/ssrn.1010615

David De la Croix (Contact Author)

Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) ( email )

3, Place Montesquieu
Louvain-la-Neuve, 1348
Belgium
+32 10 47 3945 (Fax)

HOME PAGE: http://www.de-la-croix.be

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Frédéric Docquier

Université catholique de Louvain ( email )

IRES
Place Montesquieu 3
Louvain-la-Neuve, 1348
Belgium

HOME PAGE: http://https://perso.uclouvain.be/frederic.docquier/

CREAM, Centre for Research on Environmental Appraisal & Management, UK

University of Newcastle
NE1 7RU Newcastle Upon Tyne
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Philippe Liégeois

Centre for European Policy Studies (CEPS) ( email )

1 Place du Congres
Brussels, 1000
Belgium

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