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on Economics of Ageing |
| By: | Ryo Arawatari (Graduate School of Economics, Osaka University); Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | This paper develops an overlapping-generations model including wage inequality within a generation and intra- and intergenerational resource reallocation via social security. Based on the concept of a stationary Markov perfect equilibrium, the paper focuses on the feedback mechanism between current individualsf decisions on saving and future voting on social security. The paper demonstrates the determination of social security via probabilistic voting and its consequence for consumption inequality within a generation. It is shown that when the elderly are politically powerful, (i) the economy attains an oscillatory path of inequality and social security, and (ii) aging may reduce consumption inequality. |
| Keywords: | Aging; Inequality; Social security; Political Economy; Stationary Markov Perfect Equilibrium |
| JEL: | D72 H55 J10 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:0819&r=age |
| By: | Brett, Craig |
| Abstract: | The impact of population aging on the steady state solution to a Ordover-Phelps (1979) overlapping generations optimal nonlinear income tax problem with two types of workers and quasilinear-in-leisure preferences is investigated. A decrease in the rate of population growth, which leads to an aging population, increases the relative price of consumption per person in retirement, which tends to decrease optimal consumption for retirees of both skill types. It is also shown that the optimal steady state rate of interest equals the rate of population growth. As a result, the steady state interest rate unambiguously declines when the rate of population growth declines. The resulting adjustments in production plans has an ambiguous effect on the aggregate wage rate. This article identifies factors contributing to an increase in the aggregate wage when the population ages, namely normality of consumption in retirement, complementarity between capital and labor in production, and a large capital deepening effect relative to the increase in dependency owing to demographic change. Depending on the sign of this wage effect, ambiguities may arise in the direction of change in the optimal steady state consumption and production plans. It is also shown that the optimal marginal income tax rates are independent of the rate of population growth. |
| Keywords: | optimal income taxation; overlapping generations model; population aging |
| JEL: | H21 D82 |
| Date: | 2008–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:8585&r=age |
| By: | Jane D'Arista |
| Abstract: | Aging populations have altered saving and investment patterns in many developed and emerging market economies. The structural changes that have occurred have important implications for financial stability and for the conduct of monetary policy. As assets and borrowing shifted from banks to pension funds and other institutional investors, the market-based systems that replaced bank-based systems became more procyclical and more vulnerable to systemic risk. In addition, banks’ receding share of financial assets undermined their role in channeling monetary policy initiatives and thus eroded central banks’ ability to counter excessive credit growth and contraction, defuse asset bubbles and act as effective lenders-of-last-resort in crises. This paper offers policy choices and proposals to address the adverse outcomes of these structural and institutional developments that are likely to intensify under the ongoing pressure of demographic change. |
| Keywords: | aging, banks, pension funds, financial stability, monetary policy |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp163&r=age |