Ralph C. Bryant JEL Classification: C68, E27, J11 Key words

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Ralph C. Bryant JEL Classification: C68, E27, J11 Key words: OLG Ralph C. Bryant Warwick J. McKibbin IMF Hamid Faruqee Delia Velculescu McKibbinJeremy Nguyen Delia Velculescu Marc de FleurieuElif ArbatliPablo Montagnes IT Demographic Pressures on Public Pension System and Government Budget in Open Economy” () Ralph C. Bryant: , :

Transcript of Ralph C. Bryant JEL Classification: C68, E27, J11 Key words

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EMOGRAPHIC PRESSURES ON PUBLIC PENSION SYSTEMS

AND GOVERNMENT BUDGETS IN OPEN ECONOMIES

Abstract

Demographic shifts profoundly influence the world economy, directly in the national economies

experiencing the shifts and indirectly through changes elsewhere brought about by cross-border

transactions. The research summarized in this paper is part of a project to study the global

dimensions of demographic change, emphasizing macroeconomic effects working through changes

in exchange rates and external-sector variables which in turn have major consequences for saving

and investment flows in national economies and the world economy as a whole. Comparing

alternative variants of public pension systems, this paper studies the domestic-economy and

external-sector consequences of rising elderly dependency ratios brought about by earlier declines in

fertility. It shows that alternative ways of operating public pension systems and managing

government debt can lead to substantially different macroeconomic outcomes, especially when the

openness of economies is fully integrated into the analysis. The paper also challenges the

conventional wisdom that population causes unambiguously adverse macroeconomic consequences.

For an open economy that is moving faster into or is further along in its demographic transition,

negative consequences accompanying the demographic shift are typically cushioned because the

negative effects are shared with the rest of the world. Such cushioning and sharing may not be

desirable as seen from the perspective of foreigners, but it may produce sizable welfare gains for

home residents.

¾ JEL Classification: C68, E27, J11

Key words: ageing, calibration, OLG model

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