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Demographic Fluctuations, Generational Welfare and Intergenerational Transfers

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  • Alwyn Young

Abstract

This paper extends the Ramsey model's normative analysis to issues of generational welfare and intergenerational transfers. A planner, who maximizes the discounted welfare of an endless stream of generations, is intrinsically biased against larger cohorts, which are more costly to provide utility. Imperfect production substitutability produces a market bias against baby booms as well, lowering their lifetime income. The market bias, however, tends to be greater than that of the planner, who provides the baby boom cohort with more favourable lifetime transfers. Intuitively, the baby boom benefits from temporarily reduced elderly dependency, allowing greater lifetime consumption relative to lifetime income. Declining population growth leads to rising elderly dependency, which the planner supports with increasing intergenerational transfers. Secularly rising social security taxes, and declining lifetime returns, with a baby boom cohort receiving more favourable treatment than their heavily burdened successors, are consistent with the wishes of a social planner in an environment with declining population growth.

Suggested Citation

  • Alwyn Young, 2001. "Demographic Fluctuations, Generational Welfare and Intergenerational Transfers," NBER Working Papers 8530, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8530
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    References listed on IDEAS

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    Cited by:

    1. Borgmann, Christoph, 2002. "Labor income risk, demographic risk, and the design of (wage-indexed) social security," Discussion Papers 100, Albert-Ludwigs-Universität Freiburg, Institut für Finanzwissenschaft.
    2. William Scarth & Marick Souare, 2002. "Baby-Boom Aging and Average Living Standards," Quantitative Studies in Economics and Population Research Reports 368, McMaster University.
    3. 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.

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