Population aging and cross-country redistribution in integrated capital markets

Thomas Davoine

VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy from Verein für Socialpolitik / German Economic Association

Abstract: Population aging challenges the financing of social security systems in developed economies, as the fraction of the population in working age declines. The resulting pressure on capital-labor ratios translates into a pressure on factor prices and production. While European countries all face this challenge, the speed at which their population ages differs, and thus the pressure on capital-labor ratios. If capital markets are integrated, differences in population aging may lead to cross-country spillovers, as investors freely seek the best returns on capital. Using a multi-country overlapping-generations model covering 14 European Union countries, I quantify spillovers and find that capital market integration leads to redistribution across countries over the long run. For instance, GDP per capita would on average be 2.9 %-points lower in Germany in each of the next 50 years if capital markets were perfectly integrated and public debts kept constants with increases in labor income taxes, compared to a closed economy case; by contrast, GDP per capita would on average be 2.1 %-points higher in France, whose population ages slower than in Germany. I also show that pension reforms can change the cross-country redistribution patterns, some countries losing from capital market integration without the reform but winning with it.

Keywords: population aging; pension reforms; capital markets; cross-country spillovers; overlapping-generations modelling (search for similar items in EconPapers)
JEL-codes: C68 E60 F41 J11 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge and nep-mac
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https://www.econstor.eu/bitstream/10419/181519/1/VfS-2018-pid-12567.pdf (application/pdf)

Related works:
Working Paper: Population Aging and Cross-Country Redistribution in Integrated Capital Markets (2018)
Working Paper: Population aging and cross-country redistribution in integrated capital markets (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc18:181519

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