Aging, the World Economy and the Coming Generational Storm
Friday, February 04, 2005
by Laurence Kotlikoff, Hans Fehr, and Sabine Jokisch
Table of Contents
- Executive Summary
- The Coming Generational Storm
- Simulating the Effects of Aging
- Simulations for Closed Economies
- Simulations for Open Economies
- Can Immigration Help?
- Can Private Pension Reform Solve the Problem?
- The Impact of Private Pension Reform on Selected Groups by Income and Age
- About the Author
- Were aging to raise the stock of capital compared to the supply of labor, real wages would increase and, thereby, expand the taxable wage base. This would limit the need for higher payroll taxes. The prospect of a capital stock increase arises from the fact that the elderly are the primary owners and, thus, the main suppliers of capital, while the young are the main suppliers of labor. All else equal, more oldsters relative to youngsters means a greater supply of capital relative to labor. Unfortunately, all else will not be equal. In particular, if benefits are paid as promised, the requisite tax increases will undermine capital formation as workers’ wages, some of which would otherwise be saved, are taken from them and handed over to the elderly to finance immediate consumption.
- Measured in units of human capital, or productivity absent technological change.
- Laurence Kotlikoff and Scott Burns, The Coming Generational Storm: What You Need to Know about America’s Economic Future (Cambridge, Mass.: MIT Press, 2004), page xi.
- Ibid., pages 2, 36.
- For a technical description of the model used in this report, see Hans Fehr, Sabine Jokisch and Larry Kotlikoff, “The Developed World’s Demographic Transition – The Roles of Capital Flows, Immigration and Policy,” unpublished paper, October 2003. Available at http://econ.bu.edu/kotlikoff/demotransfinal.pdf.
- Laurence J. Kotlikoff, “Privatizing Social Security,” National Center for Policy Analysis, NCPA Policy Report No. 217, July 1998.