Demographic Changes in a Small Open Economy with Endogenous Time Allocation and Age-Dependent Mortality

João Pereira

No 2019/63, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We calibrate an endogenous overlapping generations model of a small open economy to study the effects of population aging and population decline. In an invariant scenario public and foreign debt explode and GDP growth decreases markedly. Among the tested policies to control public nances, the best for the individuals is an increase in the retirement age, which needs to increase 6 years, a similar magnitude as the increase in life expectancy at birth. However, this increase has to happen before the increase in life expectancy materi- alizes itself. Aging has a stronger negative impact on public debt than population decline. We find a positive, but quantitatively modest, behavioral effect in reaction to a higher life expectancy with an impact on the GDP growth rate of only 2 basis points.

Keywords: Open Economy; Time Allocation; PAYG pensions; Debt (search for similar items in EconPapers)
JEL-codes: H55 H63 J11 J22 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-age, nep-dge and nep-gro
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp0632019

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