Population Aging, Unfunded Social Security and Economic Growth

Ken Tabata ()
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Ken Tabata: School of Economics, Kwansei Gakuin University

No 155, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: This paper examines how population aging caused by a decline in the birth rate or a reduction in the mortality rate affects economic growth in an overlapping generations model with a general demographic structure and a sizable unfunded social security system. Through numerical simulations, we show that a decline in the birth rate has non-monotonic effects on economic growth, yielding a hump-shaped relationship between the population growth rate and the economic growth rate, whereas a reduction in the mortality rate has a monotonic positive effect on economic growth, yielding a monotonic positive relationship between the population growth rate and the economic growth rate. We also use our model to study how predicted and occurring demographic changes in Japan affect that country’s economic growth rate. We show that the growth effect of the predicted demographic changes in Japan is initially positive but it may turn out to be negative from the mid 2030s forward. This paper also examines the growth and welfare effects of a reduction in pension payments or an extension of the retirement age, and shows that the pension payment reduction policy is better than the retirement extension policy for both growth and welfare in response to population aging.

Keywords: Population aging; Unfunded social security; Retirement age; Economic growth (search for similar items in EconPapers)
JEL-codes: D91 H55 O41 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2017-01, Revised 2017-01
New Economics Papers: this item is included in nep-age, nep-cmp, nep-dge and nep-gro
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:155

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