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Baby-Boom Aging and Average Living Standards

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  • William Scarth
  • Malick Souare

Abstract

A calibrated overlapping generations model is used to investigate the effect on living standards of the aging baby boom. The relative scarcity of labor when baby boomers are old raises the wage-rental ratio by an amount that is sufficient to ensure that the post baby-boom generation can enjoy a modest increase in living standards - despite facing higher taxes. Nevertheless, the baby-boom cohort itself suffers a drop in consumption, and when the two generations are considered as a group, overall living standards fall by a modest amount. These results are robust to several changes in specification: the existence of liquidity constraints, alternative assumptions regarding individuals' expectations concerning future interest rates, and different fiscal policies concerning the tax treatment of private saving for retirement. Policy initiatives that bring significant hardship today to avoid a future "crisis" are not supported by the standard overlapping generations model.

Suggested Citation

  • William Scarth & Malick Souare, 2002. "Baby-Boom Aging and Average Living Standards," Social and Economic Dimensions of an Aging Population Research Papers 68, McMaster University.
    • Handle: RePEc:mcm:sedapp:68
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    File URL: http://socserv.mcmaster.ca/sedap/p/sedap68.pdf
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    References listed on IDEAS

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    1. Alwyn Young, 2001. "Demographic Fluctuations, Generational Welfare and Intergenerational Transfers," NBER Working Papers 8530, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    over-lapping generations model; living standards; baby-boom; aging;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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