Abstract WP08-03

Andrew Mason, "Sustainable Economic Policies in an Aging World," Shanghai Forum 2008, Fudan University, Shanghai, May 25-27, 2008.

Demographic change in the coming decades will take us into uncharted waters. In many countries life expectancy has reached historic highs and birth rates historic lows. The consequence will be populations which are old and declining. Just how large the changes will be are uncertain, but if birth and death rates remain at current levels changes in population size and age structure will be dramatic. Should this be cause for alarm? A number of potential difficulties have been identified. The percentage of populations falling in the conventional working-ages will decline and dependency ratios will increase. Government programs that tax those in the working ages to provide health, long-term care, and retirement benefits to the elderly will become increasingly unsustainable. The value of homes, stock portfolios, and other assets may decline just when growing numbers of elderly are counting on these assets to fund their retirement years.

This paper examines the economic implications of population aging in light of new estimates and analysis of the inter-relationships between age and the economy based on the National Transfer Account (NTA) project. The NTA project is an international effort involving research teams from 25 countries coordinated by Ronald Lee, Director of the Center for the Economics and Demography of Aging and myself.1 An important goal is to develop and apply a system for measuring economic flows across age groups – primarily from the working ages to the dependent ages, childhood and old age. These flows are a natural consequence of the economic lifecycle that characterizes all contemporary societies studied to this point. In all countries the flows are very large, but the systems for reallocating resources across age groups vary considerably from one country to the next. Some countries depend heavily on public transfers; other rely more on familial transfers; and still others place greater emphasis on lifecycle saving. A central thesis of this work is that economic effects of changes in population age structure depend in a critical way on the systems responding to the resource deficits that exist at younger and older ages. Effective policy responses are essential to sustaining standards of living in an aging world.

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