Aging, Retirement and Economic Growth
By Chao Ma & Xiangbo Liu
This paper aims at examining the effects of an increase in life expectancy on long-run growth boosted through endogenous human capital accumulation. We first justify the negative growth effects of population aging by developing a three-period overlapping generation (OLG) model with private and public education systems and a social security scheme of a pay-as-you-go (PAYG) nature. In our model, government expenditure structure is allowed to adapt to demographic shifts for the purpose of maintaining a targeted replacement ratio in a balanced budget. To address the policy debates raised by aging, we then show in the quantitative exercises that delayed retirement policy would combat the adverse growth effect of increasing longevity by expanding public education spending and dampening young adults’ saving incentives. The baseline model is then extended to incorporate endogenous fertility decisions and intergeneration transfer of time. Simulation results show that a rise in both longevity and retirement age have the same implications for household fertility choice but through different mechanisms.
Source: SSRN
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