Fertility and mortality changes in an overlapping-generations model with realistic demography

Abstract

Many overlapping-generations models assume only working and retirement stages and are “not capable of representing the most basic feature of the human economic life cycle: that it begins and ends with periods of dependency, separated by a long intermediate period of consuming less than is produced” (Bommier and Lee, 2003). To examine the economic consequences of fertility and mortality changes in a common framework, we incorporate realistic demographic features into a continuous-time overlapping-generations model with childhood, adulthood and retirement stages. Using parameter values appropriate for industrial countries (such as the USA), we find that a fertility increase and a mortality decline, while both causing a rise in the population growth rate, have opposite effects on capital accumulation. We also consider simultaneous fertility and mortality changes, and find that the effect on capital accumulation of a mortality change dominates that of a fertility change.