Addressing the Demographic Decline in South Korea

Selahattin Imrohoroglu, Daniel Carroll, Sewon Hur and Braden Strackman

No 25-017E, CIGS Working Paper Series from The Canon Institute for Global Studies

Abstract: In this paper, we use an overlapping generations-standard incomplete markets model to quantitatively investigate the long-run implications of Koreas demographic changes and policy reforms. Importantly, our quantitative model endogenizes the retirement decision and matches the elasticity of retirement to wealth. Optimal policy likely combines reforms such as increasing the retirement age, higher taxes, or changes to retirement benefits. We use the model calibrated to Koreas economy and demography as a quantitative laboratory to investigate two policy scenarios: increasing taxes or decreasing benefits. While decreasing benefits leads to great long run activity, it comes at the cost of lower average welfare, particularly for retirees.

Pages: 29
Date: 2025-07
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