Aging and Deflation from a Fiscal Perspective

Hideki Konishi and Kozo Ueda
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Hideki Konishi: School of Political Science and Economics, Waseda University (h.konishi@waseda.jp)

No 13-E-13, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: Negative correlations between inflation and demographic aging have been observed across developed nations recently. To understand the phenomenon from a political economy perspective, we embed the fiscal theory of the price level into an overlapping-generations model. We suppose that short-lived governments successively choose income tax rates and bond issues, considering political influence from existing generations and the expected policy responses of future governments. Our analysis reveals that the effects of aging depend on its causes; aging is deflationary when caused by an unexpected increase in longevity, but is inflationary when caused by a decline in the birth rate. Our analysis also sheds new light on the traditional debate about the burden of national debt. Because of price adjustment, the accumulation of government debt imposes no burden on future generations.

Keywords: Deflation; Fiscal theory of the price level; Population aging; Redistribution across (search for similar items in EconPapers)
JEL-codes: D72 E30 E62 E63 H60 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-age, nep-dge, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
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 (2014)
Working Paper: Aging and Deflation from a Fiscal Perspective (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:13-e-13

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