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Demographic obstacles to European growth

Thomas Cooley, Espen Henriksen and Charlie Nusbaum

European Economic Review, 2024, vol. 169, issue C

Abstract: The growth rates of the four largest European economies – France, Germany, Italy, and the United Kingdom – have slowed in recent decades. The persistence of the slowdown suggests that a low-frequency structural change is at work. Longer life expectancy and declining fertility have led to gradually ageing populations. These demographic trends contribute to economic growth directly through aggregate savings and labor supply decisions and indirectly through distortionary taxes needed to fund pension systems. We provide a structural framework to quantify the demographic contributions to historical and future growth rates. Several reforms have been suggested to increase late-life labor supply and, through that, output growth. Our structural framework also gives a welfare measure to evaluate these proposed reforms. The welfare implications are heterogeneous across age, wealth, and income. Welfare heterogeneity offers some insights into the political economy of pension reforms and the opposition to their implementation despite the projected increase in aggregate output growth.

Keywords: Ageing; Growth; Life-cycle labor supply and savings; Fiscal policy; Political economy (search for similar items in EconPapers)
JEL-codes: D72 E20 E60 J11 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Demographic Obstacles to European Growth (2019) Downloads
Working Paper: Demographic Obstacles to European Growth (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:169:y:2024:i:c:s0014292124001582

DOI: 10.1016/j.euroecorev.2024.104829

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