Abstract
We study the effects of projected population aging on potential growth in Asian economies over the period 2015–2050. We find that an increase in the share of the population over 64 years of age will significantly lower output growth through decreased labor participation. Population aging can also reduce economic growth through increased labor income taxes and dampened productivity growth.
Highlights
Many Asian economies are faced with the challenge of rapidly aging populations, which can be harmful to an economy over the long run as an increase in the share of the elderly population reduces both the labor participation rate and output per adult, and increases social security dependency
We find that population aging is harmful for growth due to the decline in the size of the workforce, while population shrinking is helpful for growth due to the capital dilution effect
We find that an increase in government consumption helps growth slightly, but an increase in the labor income tax and the decline in productivity growth have major effects on growth
Summary
Many Asian economies are faced with the challenge of rapidly aging populations, which can be harmful to an economy over the long run as an increase in the share of the elderly population reduces both the labor participation rate and output per adult, and increases social security dependency. We quantitatively assess the impacts of an expanding share of the population aged 65 years and older on long-run output over the period 2015–2050. Many studies have discussed the effects of Japan’s rapidly aging population. Braun, Ikeda, and Joines (2009) use an overlapping generations model and show that population aging was a factor in the decline in the Japanese savings rate and output during the 1990s. Otsu and Shibayama (2016) construct a representative household model and show that population aging has played a significant role in accounting for the decline in Japan’s output since the 1990s through a reduced labor participation rate. The main findings of our paper are that population aging in Asian economies is harmful for potential growth in terms of (i) reduced labor participation and capital accumulation, (ii) increased labor income taxes, and (iii) reduced total factor productivity.
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