The Costs and Benefits of Caring: Aggregate Burdens of an Aging Population

38 Pages Posted: 4 Feb 2019

See all articles by Finn Kydland

Finn Kydland

Carnegie Mellon University - David A. Tepper School of Business; Norwegian School of Economics (NHH) - Department of Economics

Nick Pretnar

UCSB

Date Written: January 2019

Abstract

Throughout the 21st century, population aging in the United States will lead to increases in the number of elderly people requiring some form of living assistance which, as some argue, is to be seen as a burden on society, straining old-age insurance systems and requiring younger agents to devote an increasing fraction of their time toward caring for infirm elders. Given this concern, it is natural to ask how aggregate GDP growth is affected by such a phenomenon. We develop an overlapping generations model where young agents face idiosyncratic risk of contracting an old-age disease, like for example Alzheimer's or dementia, which adversely affects their ability to fully enjoy consumption. Young agents care about their infirm elders and can choose to supplement elder welfare by spending time taking care of them. Through this channel, aggregate GDP growth endogenously depends on young agents' degree of altruism. We calibrate the model and show that projected population aging will lead to future reductions in output of 17% by 2056 and 39% by 2096 relative to an economy with a constant population distribution. Curing diseases like Alzheimer's and dementia can lead to a compounded output increase of 5.4% while improving welfare for all agents.

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Suggested Citation

Kydland, Finn E. and Pretnar, Nick, The Costs and Benefits of Caring: Aggregate Burdens of an Aging Population (January 2019). NBER Working Paper No. w25498, Available at SSRN: https://ssrn.com/abstract=3328321

Finn E. Kydland (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412 268-3691 (Phone)
412 268-7357 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Nick Pretnar

UCSB ( email )

Santa Barbara, CA 93106
United States

HOME PAGE: http://www.npretnar.com

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