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Published on: January 7, 2013
On the dynamics of the age structure, dependency, and consumption
1Mathematica Policy Research, 600 Maryland Avenue SW, Suite 550, Washington, DC 20024-2512, USA.
Abstract:
We examine the effects of population aging due to declining fertility and rising elderly life expectancy on consumption possibilities in the presence of intergenerational transfers. Our analysis is based on a highly tractable continuous-time overlapping generations model in which the population is divided into three groups (youth dependents, workers, and elderly dependents) and lifecourse transitions take place in a probabilistic fashion. We show that the consumption-maximizing response to greater longevity in highly developed countries is an increase in fertility. However, with larger transfer payments, the actual fertility response will likely be the opposite, leading to further population aging.
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