From Here to There: Achieving Fiscal Sustainability Under Alternative Demographic Contingencies

Svend E. Hougaard Jensen (), Thorsteinn Sigurdur Sveinsson and Filipe Vieira
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Svend E. Hougaard Jensen: Copenhagen Business School Porcelaenshaven 16A
Thorsteinn Sigurdur Sveinsson: Central Bank of Iceland

De Economist, 2021, vol. 169, issue 4, No 3, 427-444

Abstract: Abstract This paper develops a model with overlapping generations of households, productive public and private capital, and a golden rule of fiscal policy aimed at maximizing economic growth. Studying the transitional dynamics between steady states triggered by different exogenous shocks, we find that a waning fertility rate, coming through a weaker preference for having children, increased longevity, a decrease in subjective discounting or lower financial support for child rearing, will require a policy intervention to ensure convergence to the growth maximizing debt level. A simple calibration exercise shows that when faced with projected demographic aging the adjustments in public debt and public investment required for keeping the economy at its maximum steady state growth rate may be small.

Keywords: Fiscal rules; Public debt; Economic growth; Demographic changes (search for similar items in EconPapers)
JEL-codes: E62 H63 J11 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10645-021-09392-3

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