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Would Population Aging Change the Output Effects of Fiscal Policy?

Author

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  • Mr. Jiro Honda
  • Hiroaki Miyamoto

Abstract

Would population aging affect the effectiveness of fiscal stimulus? Despite the renewed focus on population aging, there are few empirical studies on the output effects of fiscal policy in aging economies. Our study fills this gap by analyzing this issue in OECD countries. We find that, as population ages, the output effects of fiscal spending shocks are weakened. We also find that, while high-debt countries generally face weaker fiscal multipliers, high-debt aging economies face even weaker multipliers. These results point to important policy implications: population aging would call for a larger fiscal stimulus to support aggregate demand during recession and thus require larger fiscal space to allow a wider swing of the fiscal position without creating concerns for fiscal sustainability. Our analysis also suggests that policy measures to promote labor supply could help increase the output effect of fiscal stimulus in aging economies.

Suggested Citation

  • Mr. Jiro Honda & Hiroaki Miyamoto, 2020. "Would Population Aging Change the Output Effects of Fiscal Policy?," IMF Working Papers 2020/092, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/092
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    Citations

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    Cited by:

    1. María del Carmen Ramos-Herrera & Simón Sosvilla-Rivero, 2020. "Fiscal Sustainability in Aging Societies: Evidence from Euro Area Countries," Sustainability, MDPI, vol. 12(24), pages 1-20, December.
    2. MIyamoto Hiroaki & Yoshino Naoyuki, 2021. "Effectiveness of Fiscal Policy in Aging Economies," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 17(3), pages 1-18, November.
    3. Honda, Jiro & Miyamoto, Hiroaki, 2021. "How does population aging affect the effectiveness of fiscal stimulus over the business cycle?," Journal of Macroeconomics, Elsevier, vol. 68(C).
    4. Dragan Tevdovski & Petar Jolakoski & Viktor Stojkoski, 2022. "Determinants Of Budget Deficits: The Effects Of The Covid-19 Crisis," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 67(232), pages 105-126, January –.
    5. Dragan Tevdovski & Petar Jolakoski & Viktor Stojkoski, 2021. "Determinants of budget deficits: Focus on the effects from the COVID-19 crisis," Papers 2105.14959, arXiv.org.
    6. Rogoff, Kenneth, 2021. "Fiscal sustainability in the aftermath of the great pause," Journal of Policy Modeling, Elsevier, vol. 43(4), pages 783-793.

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