Fiscal Demographic Reversal

Hiroaki Miyamoto and Hiroaki Shinohara

No 711, CIS Discussion paper series from Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University

Abstract: We study how rising longevity affects the long-run real interest rate in an overlapping-generations model with mortality risk and accidental bequests to the young. Longer lives increase retirement saving, which tends to lower the interest rate, but they also reduce such bequests and shift asset payoffs from young savers to surviving retirees, weakening aggregate saving. Public debt amplifies this second force. When debt is sufficiently high, further increases in longevity eventually raise the steady-state interest rate. Thus, longevity need not continue to depress interest rates: with large public debt, the relationship between longevity and the interest rate becomes non-monotonic.

Keywords: demographic trend; fiscal policy; interest rate (search for similar items in EconPapers)
JEL-codes: E21 E43 J11 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2026-04-28
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Persistent link: https://EconPapers.repec.org/RePEc:hit:cisdps:711

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