Demographics, Old-Age Transfers and the Current Account

December 7, 2018

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Format: Chicago

Mai Dao, and Callum Jones. Demographics, Old-Age Transfers and the Current Account, (USA: International Monetary Fund, 2018) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Building on the evolving literature on the topic, this paper reviews the relationship between demographics and long-run capital flows in both theory and in the data. For this purpose, we develop a two region overlapping generations model where countries differ in their population growth and mortality risk. Besides exploring the implications of demographics for saving and the current account over the long-run, we also study how these might be affected by differences in the coverage and sustainability of old-age transfer schemes. The model predicts that population structure and life expectancy (which affects the need to save to meet old age consumption) affect current account levels, and that while countries with more generous unfunded transfer schemes tend to have lower saving and more capital inflows over the long-run, this effect may be dampened by natural limits (on taxation) of these schemes. The key predictions of the model are generally supported by a rich panel dataset.

Subject: Aging, Balance of payments, Capital flows, Current account, Health, Population and demographics

Keywords: Aging, Capital flows, Country Fe, Country open economy model, Current account, Current Account Flows, Demographics, Demographics affect aggregate saving, Dependency ratio, External Imbalances, Global, Life expectancy country, Lifecycle model, OLG framework, Open economy, Pay-as-you-go Old-age transfer system, Pensions, Ratio observation, Transfer scheme, Welfare perspective, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/264
Stock No:

WPIEA2018264
ISBN:

9781484385906
ISSN:

1018-5941

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