Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/207387 
Year of Publication: 
2019
Series/Report no.: 
IZA Discussion Papers No. 12561
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Will an aging population lower economic growth? Economists are generally concerned that the increase in life expectancy could lower economic growth, however, theory does not make a prediction. As life expectancy increases, so should household savings, which results in more physical capital per worker. This will stimulate economic growth. However, as the retired population share increases, this may reduce spending on children as more resources are transferred to the elderly. This will likely reduce human capital accumulation and lower growth. The net effect of these competing influences is an empirical question. This paper constructs a stylized endogenous growth model that includes both human capital and government transfers to the elderly. The model is mapped into a linear statistical framework that allows us to estimate each of these potential responses using panel data for a set of OECD countries during the period 1975-2014. We find evidence that households do in fact increase savings in response to a longer retirement period and this effect is associated with a higher realized rate of growth per worker. However, we also find evidence that an aging population reduces spending on children (or other productive investments) placing a drag on growth. These results suggest it is the institutional response to population aging that will determine whether or not an aging population will place a drag on future growth, not population aging itself.
Subjects: 
population aging
educational crowding-out
slow secular growth
cross-country panel data
JEL: 
J11
J18
I21
I28
E66
E37
O43
Document Type: 
Working Paper

Files in This Item:
File
Size
589.83 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.