Wealth creation, wealth dilution and population dynamics

Christa Brunnschweiler, Pietro Peretto and Simone Valente

No 2017-04, University of East Anglia School of Economics Working Paper Series from School of Economics, University of East Anglia, Norwich, UK.

Abstract: Wealth creation driven by R&D investment and wealth dilution caused by disconnected generations interact with households' fertility decisions, delivering a theory of sustained endogenous output growth with a constant endogenous population level in the long run. Unlike traditional theories, our model fully abstracts from Malthusian mechanisms and provides a demography-based view of the long run where the ratios of key macroeconomic variables - consumption, labor incomes and financial assets - are determined by demography and preferences, not by technology. Calibrating the model parameters on OECD data, we show that negative demographic shocks induced by barriers to immigration or increased reproduction costs may raise growth in the very long run, but reduce the welfare of a long sequence of generations by causing permanent reductions in the mass of firms and in labor income shares, as well as prolonged stagnation during the transition.

Keywords: R&D-based growth; overlapping generations; endogenous fertility; population level; wealth dilution (search for similar items in EconPapers)
JEL-codes: E25 J11 O41 (search for similar items in EconPapers)
Date: 2017-10-18
New Economics Papers: this item is included in nep-age, nep-dem, nep-gro, nep-lab and nep-mac
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Citations: View citations in EconPapers (4)

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