Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/80202 
Year of Publication: 
2006
Series/Report no.: 
Working Paper No. 2006-08
Publisher: 
Brown University, Department of Economics, Providence, RI
Abstract: 
We examine the dynamic interaction of the population age structure, economic dependency, and fertility, paying particular attention to the role of intergenerational transfers. In the short run, a reduction in fertility produces a “demographic dividend” that allows for higher consumption. In the long run, however, higher old-age dependency can more than offset this effect. To analyze these dynamics we develop a highly tractable continuous-time overlapping generations model in which population is divided into three groups (young, working age, and old) and transitions between groups take place in a probabilistic fashion. We show that most highly developed countries have fertility below the rate that maximizes steady state consumption. Further, the dependency-minimizing response to increased longevity is to raise fertility. In the face of the high taxes required to support transfers to a growing aged population, we demonstrate that the actual response of fertility will likely be exactly the opposite, leading to increased population aging. – Aging ; fertility ; intergenerational transfers ; consumption
JEL: 
E10
E21
H55
J11
J13
Document Type: 
Working Paper

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