The effects of aging population on the sustainability of fiscal policy

Mikko Puhakka

No 26/2005, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: We study the effects of aging population on the sustainability of fiscal policy in overlapping generations models with government debt and a pay-as-you-go pension system.The smaller the population growth rate, the lower the maximum sustainable level of deficits. When the utility function is of a specific form, an increase in the payroll tax rate and the replacement rate decreases the level of maximum sustainable deficits; except in the case when pension depends on the wage level prevailing during the working period.The ratio of the deficits in two economies with different population growth rates is characterized with numerical examples.

Keywords: aging; pensions; overlapping generations; fiscal policy (search for similar items in EconPapers)
JEL-codes: E21 E32 (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2005_026

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