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Population Aging, Unfunded Social Security and Economic Growth

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  • Ken Tabata

    (School of Economics, Kwansei Gakuin University)

Abstract

This paper examines how population aging caused by a decline in the birth rate or a reduction in the mortality rate affects economic growth in an overlapping generations model with a general demographic structure and a sizable unfunded social security system. Through numerical simulations, we show that a decline in the birth rate has non-monotonic effects on economic growth, yielding a hump-shaped relationship between the population growth rate and the economic growth rate, whereas a reduction in the mortality rate has a monotonic positive effect on economic growth, yielding a monotonic positive relationship between the population growth rate and the economic growth rate. We also use our model to study how predicted and occurring demographic changes in Japan affect that country’s economic growth rate. We show that the growth effect of the predicted demographic changes in Japan is initially positive but it may turn out to be negative from the mid 2030s forward. This paper also examines the growth and welfare effects of a reduction in pension payments or an extension of the retirement age, and shows that the pension payment reduction policy is better than the retirement extension policy for both growth and welfare in response to population aging.

Suggested Citation

  • Ken Tabata, 2017. "Population Aging, Unfunded Social Security and Economic Growth," Discussion Paper Series 155, School of Economics, Kwansei Gakuin University, revised Jan 2017.
    • Handle: RePEc:kgu:wpaper:155
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    References listed on IDEAS

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    1. Kazumasa Oguro, 2014. "Challenges confronting Abenomics and Japanese public finance ?Fiscal consolidation must start by squarely facing reality?," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 10(2), pages 301-318, August.
    2. David E. Bloom & David Canning, 2004. "Global demographic change : dimensions and economic significance," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 9-56.
    3. Ken-ichi Hashimoto & Ken Tabata, 2016. "Demographic change, human capital accumulation and R&D-based growth," Canadian Journal of Economics, Canadian Economics Association, vol. 49(2), pages 707-737, May.
    4. Kazutoshi Miyazawa, 2006. "Growth and inequality: a demographic explanation," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(3), pages 559-578, July.
    5. An, Chong-Bum & Jeon, Seung-Hoon, 2006. "Demographic change and economic growth: An inverted-U shape relationship," Economics Letters, Elsevier, vol. 92(3), pages 447-454, September.
    6. Boucekkine, Raouf & de la Croix, David & Licandro, Omar, 2002. "Vintage Human Capital, Demographic Trends, and Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 104(2), pages 340-375, June.
    7. Philippe Michel & Bertrand Wigniolle, 2007. "On Efficient Child Making," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 31(2), pages 307-326, May.
    8. Ken Tabata, 2015. "Population Aging and Growth: the Effect of PAYG Pension Reform," Discussion Paper Series 125, School of Economics, Kwansei Gakuin University, revised Jan 2015.
    9. Heijdra, Ben J. & Mierau, Jochen O., 2012. "The individual life-cycle, annuity market imperfections and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 36(6), pages 876-890.
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    More about this item

    Keywords

    Population aging; Unfunded social security; Retirement age; Economic growth;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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