Aging and deflation from a fiscal perspective
Hideki Konishi and
No 218, Globalization Institute Working Papers from Federal Reserve Bank of Dallas
Negative correlations between inflation and demographic aging were observed across developed nations recently. To understand the phenomenon from a politico-economic perspective, we embed the fiscal theory of the price level into an overlapping-generations model. In the model, successive short-lived governments choose income tax rates and bond issues considering the political influence of existing generations and the policy response of future governments. The model sheds new light on the traditional debate about the burden of national debt. Because of price adjustments, the accumulation of government debt does not become a burden on future generations. Our analysis reveals that the effects of aging depend on its causes. Aging is deflationary when caused by an increase in longevity but inflationary when caused by a decline in birth rate. Numerical simulation shows that aging over the past 40 years in Japan generated deflation of about 0.6 percentage points annually.
JEL-codes: D72 E30 E62 E63 H60 (search for similar items in EconPapers)
Pages: 28 pages
New Economics Papers: this item is included in nep-age, nep-dge and nep-mac
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Journal Article: Aging and deflation from a fiscal perspective (2020)
Working Paper: Aging and Deflation from a Fiscal Perspective (2014)
Working Paper: Aging and Deflation from a Fiscal Perspective (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:218
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