Demographic Obstacles to European Growth

Thomas Cooley, Edwin Nusbaum and Espen Henriksen
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Espen Henriksen: University of California, Davis

No 1352, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: Since the early 1990’s there have been persistent slowdowns in the growth rates of the four largest European economies: France, Germany, Italy, and the United Kingdom. This persistence suggests a low-frequency structural change is at work. Aging populations, both in terms of longer individual life expectancies and declining fertility have caused a shift in the age-cohort distribution. Growth accounting identifies the following five sources of economic growth: total factor productivity, capital accumulation, labor supply on the intensive and extensive margin, and population growth. Changing demographics affect all these five margins. The effects of aging populations on economic growth are also exacerbated by the pension systems in place. In order to fund increasing liabilities with a shrinking tax base, tax rates must increase to balance budgets. This will impose distortions to individual factor-supply choices, providing further headwinds for economic growth. We quantify the additional growth effects resulting from these distortions.

Date: 2019
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge, nep-eec and nep-gro
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Demographic obstacles to European growth (2024)
Working Paper: Demographic Obstacles to European Growth (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:1352

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