Ageing and fiscal sustainability in a small euro area economy

Cláudia Braz, Gabriela Castro (), José Maria, Paulo Júlio and Ricardo Félix ()

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: Population ageing is a key trend in Western economies. The impact of this trend will be widespread, affecting investment and saving decisions over the next decades, and represents a major challenge to policymakers. Debt sustainability issues in euro area economies may (re)emerge, particularly given the pay-as-you-go nature of most public pension systems. In a decentralised fiscal policy framework, ageing and the respective policy response might intensify the latent macroeconomic imbalances that underlie the ongoing sovereign debt crisis. In this paper, we include a stylised pension system in an open economy New-Keynesian general equilibrium model with non-Ricardian agents. The model is used to assess the macroeconomic impacts of ageing in a small euro area economy. The results suggest that the impact can be significant, depending on the magnitude and pace of the ageing dynamics, the existing rules for social benefits and the policy response. It can be inferred from the results that supranational policy coordination at euro area level is crucial to foster economic and financial stability.

JEL-codes: E62 F41 H62 J11 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-age, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: AGING AND FISCAL SUSTAINABILITY IN A SMALL EURO AREA ECONOMY (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w201304

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