Population ageing in a small open economy : some policy experiments with a tractable general equilibrium model

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Title: Population ageing in a small open economy : some policy experiments with a tractable general equilibrium model
Author: Kilponen, Juha ; Kinnunen, Helvi ; Ripatti, Antti
Organization: Suomen Pankki
Series: Bank of Finland Research Discussion Papers
Series number: 28/2006
Year of publication: 2006
Publication date: 1.10.2006
Published in: Ilmestynyt myös VATT Publications 58/2011.
Pages: 39 s.
Keywords: väestö; ikääntyminen; avoin talous; vaikutukset; mallit; julkinen talous; verotus; eläkkeet; Suomi; uudistukset; finanssipolitiikka;
JEL: E13; H55; J11; J26
Abstract: This paper extends Gertler's (1999) tractable overlapping generations model with life-cycle features by allowing for distortionary taxation, demographic transition and stochastic variation in demographic structure.The model is then used to study demographic change in the small open economy of Finland. Simulations highlight the key role played by labour market responses to ageing.When the responses of labour supply, wages, and hence private consumption, to higher taxation are consistently accounted for, population ageing has clearly much larger effects on public finance, when compared to mechanical sustainability calculations.Stochastic simulations suggest that lengthening of working time has only a modest alleviating effect on the fiscal burden of ageing.This is due to the fact that stochastic variation in the length of working time has only a relatively small effect on the model's dependency ratio.Variation in life expectancy is clearly much more important. Key words: ageing, general equilibrium, public finance, demographic uncertainty JEL classification numbers: E13, H55, J11, J26
Rights: https://helda.helsinki.fi/bof/copyright


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