Baby-Boom Aging and Average Living Standards

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

Macroeconomic Implications of Population Aging and Public Pensions

We develop a calibrated general equilibrium model of a small open economy to examine some macroeconomic and distributional effects of an aging population. The model features overlapping generations with a public pension system, asymmetric information in the labor market, and includes some households that are liquidity constrained. Our main results are as follows. First, by analyzing the consequences of population aging in one country without taking into account the extent of aging throughout the world, one may systematically misestimate the effect which aging may have on that country's living standards and its net foreign asset position. Second, the magnitude of the effect of an aging population on people's average living standards, both in the short run and in the long run, significantly depends on whether or not they are liquidity constrained. Third, whether increases in contribution rates to finance the public pension system (as the elderly dependency ratio rises) are imposed on workers or firms has little effect on the impact of aging on living standards; however, it does matter for the unemployment rate.population aging; general equilibrium model; public pension

Productivity Growth, Poverty Reduction and Income Inequality: New Empirical Evidence

International audienceThere is a long-standing view that economic growth is the most powerful instrument for reducing poverty. In dynamic economies most economic growth comes from productivity growth, and yet the literature concerning the relationship between productivity changes and poverty is sparse. Against this backdrop, this paper examines the impact of productivity growth on income and human poverty, and assesses the role played by the income distribution in that relationship. Using cross-country data to conduct a regional comparative analysis, we find that productivity growth is more relevant for poverty reduction than the more commonly used indicator economic growth – a finding that is robust across regions. We also find that the poverty-reducing impact of productivity growth is stronger in countries with relatively low income inequality. These findings suggest that countries attempting to reach their objectives of eradicating poverty should pursue policies that foster productivity growth; and that productivity growth that is accompanied by progressive distributional change is even better for alleviating poverty