Population, Pensions, and Endogenous Economic Growth

49 Pages Posted: 3 Dec 2008

See all articles by Burkhard Heer

Burkhard Heer

University of Augsburg; CESifo (Center for Economic Studies and Ifo Institute)

Andreas Irmen

University of Luxembourg - Ceter for Research in Economic Analysis (CREA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Munich

Multiple version iconThere are 2 versions of this paper

Date Written: November 2008

Abstract

We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy. First, we establish that the net effect of a decline in population growth on the growth rate of percapita magnitudes is positive and quantitatively significant. Second, we find that the pension system matters both for the growth performance and for individual welfare. Third, we show that the assessment of pension reform proposals may be different in an endogenous growth framework as opposed to the standard framework with exogenous growth.

Keywords: growth, demographic transition, capital accumulation, pension reform

JEL Classification: O41, C68, O11, D91, D31

Suggested Citation

Heer, Burkhard and Irmen, Andreas, Population, Pensions, and Endogenous Economic Growth (November 2008). CESifo Working Paper Series No. 2480. Available at SSRN: https://ssrn.com/abstract=1310106

Burkhard Heer (Contact Author)

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Andreas Irmen

University of Luxembourg - Ceter for Research in Economic Analysis (CREA) ( email )

162a, avenue de la Faïencerie
Luxembourg, L – 1511
Luxembourg

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/crea/people/andreas_irmen

CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Munich

Poschinger Str. 5
Munich, DE-81679
Germany

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