The Dynamics of the Age Structure, Dependency, and Consumption / Heinrich Hock, David N. Weil.

Format:

Book

Author/Creator:

Hock, Heinrich.

Contributor:

National Bureau of Economic Research.

Weil, David N.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12140.

NBER working paper series no. w12140

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

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.

Notes:

Print version record

April 2006.