NTA2020 LeeR_a

Global Meeting on Population and the Generational Economy, August 2020

Presentation: Ronald Lee, How does a change in the population age distribution affect the macroeconomy?


How does a change in the population age distribution affect the macroeconomy? Starting from a standard growth model setup and an initial population age distribution, I consider the consequences of an arbitrary but small perturbation of the full age distribution, which could reflect population aging, or a demographic dividend, or a baby boom, or comparative steady states. Holding the shapes of age profiles from National Transfer Accounts constant, the age distribution perturbation affects aggregate labor supply, capital, consumption, and saving. Assuming a Cobb-Douglas production function, I derive effects on National Income, per capita income, wages, interest rates, and so on. The impact on consumption per effective consumer comes closest to a welfare outcome measure, and implicitly reflects the systems of public and private transfers. Results are derived for both open and closed economies. Applications to the US and other rich and developing nations show that results can be quite different than the support ratio suggests, and that effects of population aging on individual economic well-being can be muted or reversed because of rising capital intensity.

File: NTA2020 LeeR_a

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