TEL  Vol.5 No.2 , April 2015
Population Ageing and Capital Accumulation: A Simple OLG Model with PAYGO Pensions
ABSTRACT
Population in developed countries has dramatically aged in recent years. At the same time, most of these countries finance their old-age public pension benefits on a pay-as-you-go (PAYGO) basis. Such a pension scheme combined with an ageing population, represent a financial challenge for the governmental budgets. Accordingly, several studies have been done on the effects of population ageing. In the present paper, the purpose is to study how population ageing will affect capital accumulation. A simple OLG model with PAYGO pension is applied. The formulation of the model makes it possible to deduce an explicit expression for this relation. It is shown that an increase in the elderly dependency ratio will increase the long-run capital stock.

Cite this paper
Thøgersen, J. (2015) Population Ageing and Capital Accumulation: A Simple OLG Model with PAYGO Pensions. Theoretical Economics Letters, 5, 155-162. doi: 10.4236/tel.2015.52019.
References
[1]   Borsch-Supan, A., Ludwig, A. and Winter, J. (2006) Ageing, Pension Reform and Capital Flows: A Multicountry Simulation Model. Economica, 73, 625-658.

[2]   United Nations Population Division (2012) World Population Prospects: The 2011 Revision. United Nations.

[3]   Cutler, D.M., Poterba, J.M., Sheiner, L.M. and Summers, L.H. (1999) An Aging Society: Opportunity or Challenge? Brookings Papers on Economic Activity, 1, 1-56.

[4]   Sadahiro, A. and Shimasawa, M. (2004) Ageing, Policy Reforms and International Capital Flows in a Computable Two-Country OLG Model. ESRI Discussion Paper Series No. 97.

[5]   Attanasio, O. and Violante, G. (2000) The Demographic Transition in Closed and Open Economies: A Tale of Two Regions. Inter-American Development Bank Working Papers 412.

[6]   Auerbach, A. and Kotlikoff, L. (1987) Dynamic Fiscal Policy. Cambridge University Press, Cambridge.

[7]   Meijdam, L. and Verbon, H.A.A. (1997) Aging and Public Pensions in an Overlapping-Generations Model. Oxford Economic Papers, 49, 29-42.
http://dx.doi.org/10.1093/oxfordjournals.oep.a028595

[8]   Marchand, M., Michel, P. and Pestieau, P. (1996) Intergenerational Transfers in an Endogenous Growth Model with Fertility Changes. European Journal of Political Economy, 12, 33-48.
http://dx.doi.org/10.1016/0176-2680(95)00036-4

[9]   Diamond, P.A. (1965) National Debt in a Neoclassical Growth Model. American Economic Review, 55, 1126-1150.

 
 
Top