Abstract
This paper investigates the implications of similarities and differences in demographics between Japan and the United States. For this purpose, we construct an overlapping generations model wherein people decide their number of children and levels of consumption for differentiated goods. We assume that immigration takes place according to the utility difference between inside and outside a country. We uncover possible effects of an improvement in longevity on the market size and welfare. We then calibrate our model to match the Japanese and US data from 1955 to 2015 and pin down the dominant effect. Moreover, our counterfactual analyses show that accepting immigration in Japan can be useful in overcoming population and market shrinkage caused by an aging population.
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