Population aging and cross-country redistribution in integrated capital markets

Davoine, Thomas (February 2018) Population aging and cross-country redistribution in integrated capital markets. Closed Series > Working Paper Series > IHS Economics Series 337, 35 p.

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Abstract or Table of Contents

Population aging challenges the financing of social security systems in developed economies, as the fraction of the population in working age declines. The resulting pressure on capital-labor ratios translates into a pressure on factor prices and production. While European countries all face this challenge, the speed at which their population ages differs, and thus the pressure on capital-labor ratios. If capital markets are integrated, differences in population aging may lead to cross-country spillovers, as investors freely seek the best returns on capital. Using a multi-country overlapping-generations model covering 14 European Union countries, I quantify spillovers and find that capital market integration leads to redistribution across countries over the long run. For instance, GDP per capita would on average be 2.9 %-points lower in Germany in each of the next 50 years if capital markets were perfectly integrated and public debts kept constants with increases in labor income taxes, compared to a closed economy case; by contrast, GDP per capita would on average be 2.1 %-points higher in France, whose population ages slower than in Germany. I also show that pension reforms can change the cross-country redistribution patterns, some countries losing from capital market integration without the reform but winning with it.

Item Type: IHS Series
Additional Information (public): This paper has also been published as EconPol Working Paper 9 (2018, Vol.2), see related URL below.
Keywords: population aging, pension reforms, capital markets, cross-country spillovers, overlapping-generations modelling
Classification Codes (e.g. JEL): C68, E60, F41, J11
Research Units: European Governance and Public Finance
Status: Published
Related URLs:
Date Deposited: 06 Mar 2018 08:21
Last Modified: 21 May 2019 16:52
URI: https://irihs.ihs.ac.at/id/eprint/4587

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