 On the relationship between fiscal multipliers and population aging in Japan: Theory and empiricsHiroshi Morita Economic Modelling, 2022, vol. 108, issue C Abstract: Recent literature has pointed out that the effect of fiscal policy possibly depends on the aging structure. This paper contributes to the literature by approaching this issue from both empirical and theoretical perspectives. We first examine how population aging affects the efficacy of fiscal stimulus by using panel data from Japan, the world's fastest aging country, and reveal that a government spending shock becomes less effective as the aging rate increases. Then, we construct the theoretical model with heterogeneous agents to replicate our empirical evidence and conduct counterfactual simulation to identify the source of state-dependency. The counterfactual analysis highlights the role of the supply channel through which workers under a liquidity constraint can benefit from increased disposable income induced by a government spending shock. This suggests that promoting labor market participation by elderly people can increase the effectiveness of a government spending shock amid a rapidly aging society. Keywords: Population aging; Fiscal multipliers; Hierarchical panel VAR model; New Keynesian model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:108:y:2022:i:c:s0264999322000189 DOI: 10.1016/j.econmod.2022.105772 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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