Aging and its macroeconomic consequences: An inverted U-shaped endogenous economic growth

Takefumi Hagiwara

MPRA Paper from University Library of Munich, Germany

Abstract: This study theoretically analyzes population aging and its impacts on economic growth, wealth inequality, and fiscal sustainability. We introduce lifetime uncertainty to the overlapping generations model with heterogeneous households with varied intertemporal preferences, where unintended bequests caused by death are inherited by offspring. Aging can have both positive and negative impacts on economic growth and fiscal sustainability: saving-enhancing effects based on the life cycle theory and wealth-depletion effects caused by extended longevity. When aging advances, saving-enhancing effects are offset by wealth-depletion effects, which eventually outweigh the former. The results show an “inverted U-shaped” relationship between life expectancy and economic growth rate, or fiscal sustainability. Numerical simulation reveals that aging can produce a trade-off between economic growth and wealth inequality. We also show that a rise in deficit or government expenditure ratios exacerbate fiscal instability, economic growth, and wealth inequality under certain conditions.

Keywords: Population Aging; Secular Stagnation; Inequality; Fiscal Sustainability (search for similar items in EconPapers)
JEL-codes: D63 H63 J14 O11 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:124598

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