The Dynamics of an Aging Population: the Case of Four OECD Countries

51 Pages Posted: 7 Jul 2004 Last revised: 4 Nov 2010

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Laurence J. Kotlikoff

Boston University - Department of Economics; National Bureau of Economic Research (NBER); Gaidar Institute for Economic Policy

Robert Hagemann

International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Giuseppe Nicoletti

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Date Written: February 1989

Abstract

Demographic changes, such as those anticipated in most OECD countries, have many economics effects that impinge on a country's fiscal viability. Evaluation of the effects of associated changes in capital-labor ratios and the welfare and behavior of different generations requires the use of a dynamic general equilibrium model. The 75 generations - 250 year demographic simulation model, presented in Auerbach and Kotlikoff (1987, Chapter 11), has been modified to incorporate bequest behavior, technological change, the possibility that the economy is open to international trade, and government consumption expenditures that depend on the age composition of the population. The model has been further adapted to study the effects of impending demographic changes in Japan, the Federal Republic of Germany, Sweden and the United States. The simulation results indicate that these changes will have a major impact on rates of national saving, real wage rate and current accounts. One of this paper's fundamental lessons is that allowing for general equilibrium adjustments reduces the adverse welfare effects of increasing dependency ratios. Nevertheless, the welfare costs, and particularly their distributions across cohorts, pose serious challenges for policy makers in some cases.

Suggested Citation

Auerbach, Alan Jeffrey and Kotlikoff, Laurence J. and Hagemann, Robert and Nicoletti, Giuseppe, The Dynamics of an Aging Population: the Case of Four OECD Countries (February 1989). NBER Working Paper No. w2797. Available at SSRN: https://ssrn.com/abstract=226868

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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Laurence J. Kotlikoff

Boston University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Gaidar Institute for Economic Policy

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Robert Hagemann

International Monetary Fund (IMF) ( email )

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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Giuseppe Nicoletti

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

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France
+33 1 4524 8730 (Phone)
+33 1 4524 1347 (Fax)

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