Is low fertility really a problem? Population aging, dependency, and consumption

Longer lives and fertility far below the replacement level of 2.1 births per woman are
leading to rapid population aging in many countries. Many observers are concerned that
aging will adversely affect public finances and standards of living. Analysis of newly
available National Transfer Accounts data for 40 countries shows that fertility well above
replacement would typically be most beneficial for government budgets. However,
fertility near replacement would be most beneficial for standards of living when the
analysis includes the effects of age structure on families as well as governments. And
fertility below replacement would maximize per capita consumption when the cost of
providing capital for a growing labor force is taken into account. Although low fertility will
indeed challenge government programs and very low fertility undermines living
standards, we find that moderately low fertility and population decline favor the broader
material standard of living.