On the Consequences of Demographic Change for International Capital Flows, Rates of Returns to Capital, and the Distribution of Wealth and Welfare

Dirk Krueger () and Alexander Ludwig ()

No 643, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: In all major industrialized countries the population is aging over time, reducing the fraction of the population in working age. Consequently labor is expected to be scarce, relative to capital, with an ensuing decline in real returns on capital and increases in real wages. This paper employs a large scale OLG model with intra-cohort heterogeneity to ask what are the distributional consequences of these changes in factor prices induced by changes in the demographic structure. Since these demographic changes occur at different speed in industrialized economies we develop a multi-region (the US, the European Union, the rest of the OECD and the rest of the world) openeconomy model that allows for international capital flows. This allows us to evaluate to what extent the distributional consequences of changing factor prices for the US and Europe are mitigated or accentuated by the fact that the population is aging at different rates elsewhere in the world

Keywords: aging; capital flows; pension reform; welfare; distribution (search for similar items in EconPapers)
JEL-codes: E27 F21 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pbe
Date: 2006-12-03

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Persistent link: http://EconPapers.repec.org/RePEc:red:sed006:643

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