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Population ageing in a small open economy: some policy experiments with a tractable general equilibrium model

Juha Kilponen, Helvi Kinnunen and Antti Ripatti

No 28/2006, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: This paper extends Gertler's (1999) tractable overlapping generations model with life-cycle features by allowing for distortionary taxation, demographic transition and stochastic variation in demographic structure.The model is then used to study demographic change in the small open economy of Finland. Simulations highlight the key role played by labour market responses to ageing.When the responses of labour supply, wages, and hence private consumption, to higher taxation are consistently accounted for, population ageing has clearly much larger effects on public finance, when compared to mechanical sustainability calculations.Stochastic simulations suggest that lengthening of working time has only a modest alleviating effect on the fiscal burden of ageing.This is due to the fact that stochastic variation in the length of working time has only a relatively small effect on the model's dependency ratio.Variation in life expectancy is clearly much more important.

Keywords: ageing; general equilibrium; public finance; demographic uncertainty (search for similar items in EconPapers)
JEL-codes: E13 H55 J11 J26 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (1)

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Working Paper: Population Ageing in a Small Open Economy - Some Policy Experiments With a Tractable General Equilibrium Model (2008) Downloads
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