Reference : Population, Pensions, and Endogenous Economic Growth
Scientific journals : Article
Business & economic sciences : Macroeconomics & monetary economics
Population, Pensions, and Endogenous Economic Growth
Irmen, Andreas mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Heer, Burkhard [University of Augsburg > Department of Economcis > > University Professor of Economics]
Journal of Economic Dynamics & Control
[en] Growth ; Demographic transition ; Capital accumulation ; Pension reform
[en] We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of
the pension scheme. When labor is scarcer it becomes more expensive and innovation
investments that increase labor productivity are more profitable. We incorporate this
channel in a new dynamic general equilibrium model with endogenous economic growth
and heterogeneous overlapping generations. We calibrate the model for the US economy
and obtain the following results. First, the effect of a decline in population growth on labor
productivity growth is positive and quantitatively significant. In our benchmark, it is
predicted to increase from an average annual growth rate of 1.74% over 1990–2000 to
2.41% in 2100. Second, institutional characteristics of the pension system matter both for
the growth performance and for individual welfare. Third, the assessment of pension
reform proposals may depend on whether economic growth is endogenous or exogenous.
Researchers ; Professionals

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