The Dynamics of the Age Structure, Dependency, and Consumption

35 Pages Posted: 31 Mar 2006

See all articles by David N. Weil

David N. Weil

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Heinrich Hock

Mathematica Policy Research

Multiple version iconThere are 2 versions of this paper

Date Written: March 24, 2006


We examine the dynamic interaction of the population age structure, economic dependency, and fertility, paying particular attention to the role of intergenerational transfers. In the short run, a reduction in fertility produces a "demographic dividend" that allows for higher consumption. In the long run, however, higher old-age dependency can more than offset this effect. To analyze these dynamics we develop a highly tractable continuous-time overlapping generations model in which population is divided into three groups (young, working age, and old) and transitions between groups take place in a probabilistic fashion. We show that most highly developed countries have fertility below the rate that maximizes steady state consumption. Further, the dependency-minimizing response to increased longevity is to raise fertility. In the face of the high taxes required to support transfers to a growing aged population, we demonstrate that the actual response of fertility will likely be exactly the opposite, leading to increased population aging.

Keywords: Aging, fertility, intergenerational transfers, consumption

JEL Classification: E10, E21, H55, J11, J13

Suggested Citation

Weil, David Nathan and Hock, Heinrich, The Dynamics of the Age Structure, Dependency, and Consumption (March 24, 2006). Available at SSRN: or

David Nathan Weil (Contact Author)

Brown University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Heinrich Hock

Mathematica Policy Research ( email )

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