Aging and Deflation from a Fiscal Perspective

Mitsuru Katagiri (), Hideki Konishi () and Kozo Ueda
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Mitsuru Katagiri: Bank of Japan
Hideki Konishi: Faculty of Political Science and Economics, Waseda University

No 1413, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: 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.

Keywords: Fiscal theory of the price level; Politico-economic equilibrium (search for similar items in EconPapers)
JEL-codes: D72 E30 E62 E63 H60 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014-11
New Economics Papers: this item is included in nep-age, nep-dge, nep-mac and nep-pbe
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Citations: View citations in EconPapers (12)

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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 (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:wap:wpaper:1413

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