Population, Pensions and Endogenous Economic Growth

Andreas Irmen and Burkhard Heer

No 7172, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy. First, we establish that the net effect of a decline in population growth on the growth rate of per-capita magnitudes is positive and quantitatively significant. Second, we find that the pension system matters both for the growth performance and for individual welfare. Third, we show that the assessment of pension reform proposals may be different in an endogenous growth framework as opposed to the standard framework with exogenous growth.

Keywords: Growth; Demographic transition; Capital accumulation; Pension reform (search for similar items in EconPapers)
JEL-codes: C68 D31 D91 O11 O41 (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-age, nep-dev, nep-dge and nep-fdg
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Population, pensions, and endogenous economic growth (2014)
Working Paper: POPULATION, PENSIONS, AND ENDOGENOUS ECONOMIC GROWTH (2013)
Working Paper: Population, Pensions, and Endogenous Economic Growth (2008)
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