Abstract
Population aging alters decisions of retirement and intergenerational transfers simultaneously. With the consideration of both decisions, this paper investigates the economic impacts of population aging in an Overlapping-Generation (OLG) model under social security coverage. Results show that the economy grows slower with voluntarily increased elderly labor supply than otherwise. Ignoring the interactions between these decisions may lead to a serious mis-estimation. Results also show that mandatory postponing retirement creates disincentive to saving and hinders the economy. To prevent the economy from slowing down and fertility from falling, mandatory postponing retirement must be accompanied by a lower replacement ratio.
Highlights
Over the last few decades, people are getting worried about the changes posed by the burden of population aging on the working generation and eventually on the economy
When the retirement age is less than 126.8, retirement age decreases economic growth holding others constant. This result supports the lower-right panel of Figure 2 that when holding life expectancy at a given level, higher retirement age is associated with a lower economic growth rate
This paper presents an OLG model with both retirement and fertility decisions endogenized to study population aging and social security
Summary
Over the last few decades, people are getting worried about the changes posed by the burden of population aging on the working generation and eventually on the economy. Gross saving rate presents an inverted U pattern Working parents make their decisions about their own retirement and intergenerational transfers simultaneously. Population aging permits the working population to postpone their retirement and adjust the labor supply . It burdens the working population more by increasing social security tax rate. Theoretical results show that the effects of heavier tax burden dominate the effects of postponing retirement on the fertility and economic growth when population ages. The empirical results show that retirement decisions might be bounded by mandatory retirement policy These results match the theoretical predictions that mandatory late retirement policy leads to a higher fertility but a lower economic growth rate
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