Population aging and cross-country redistribution in integrated capital markets

Davoine, ThomasORCID: https://orcid.org/0000-0002-5941-0798 (February 2018) Population aging and cross-country redistribution in integrated capital markets. Former Series > Working Paper Series > IHS Economics Series 337, 35 p.

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Abstract

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:	Former Research Units (until 2020) > European Governance and Public Finance
Related URLs:	http://www.econpol.eu/publications/worki...
Date Deposited:	06 Mar 2018 08:21
Last Modified:	20 Sep 2023 11:18
ISSN:	1605-7996
URI:	https://irihs.ihs.ac.at/id/eprint/4587

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