Demographics, Old-Age Transfers and the Current Account

36 Pages Posted: 14 Jan 2019

See all articles by Mai Dao

Mai Dao

International Monetary Fund (IMF)

Callum Jones

Board of Governors of the Federal Reserve System

Date Written: December 2018


Building on the evolving literature on the topic, this paper reviews the relationship between demographics and long-run capital flows in both theory and in the data. For this purpose, we develop a two region overlapping generations model where countries differ in their population growth and mortality risk. Besides exploring the implications of demographics for saving and the current account over the long-run, we also study how these might be affected by differences in the coverage and sustainability of old-age transfer schemes. The model predicts that population structure and life expectancy (which affects the need to save to meet old age consumption) affect current account levels, and that while countries with more generous unfunded transfer schemes tend to have lower saving and more capital inflows over the long-run, this effect may be dampened by natural limits (on taxation) of these schemes. The key predictions of the model are generally supported by a rich panel dataset.

Keywords: Pensions, Demographic indicators, Current account balances, Current account surpluses, Capital flows, Aging, Demographics, Current Account Flows, External Imbalances, General

JEL Classification: E20, J10

Suggested Citation

Dao, Mai and Jones, Callum, Demographics, Old-Age Transfers and the Current Account (December 2018). IMF Working Paper No. 18/264, Available at SSRN:

Mai Dao (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Callum Jones

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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