IMF Working Papers

Would Population Aging Change the Output Effects of Fiscal Policy?

By Jiro Honda, Hiroaki Miyamoto

June 12, 2020

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Jiro Honda, and Hiroaki Miyamoto. Would Population Aging Change the Output Effects of Fiscal Policy?, (USA: International Monetary Fund, 2020) accessed November 23, 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

Would population aging affect the effectiveness of fiscal stimulus? Despite the renewed focus on population aging, there are few empirical studies on the output effects of fiscal policy in aging economies. Our study fills this gap by analyzing this issue in OECD countries. We find that, as population ages, the output effects of fiscal spending shocks are weakened. We also find that, while high-debt countries generally face weaker fiscal multipliers, high-debt aging economies face even weaker multipliers. These results point to important policy implications: population aging would call for a larger fiscal stimulus to support aggregate demand during recession and thus require larger fiscal space to allow a wider swing of the fiscal position without creating concerns for fiscal sustainability. Our analysis also suggests that policy measures to promote labor supply could help increase the output effect of fiscal stimulus in aging economies.

Subject: Aging, Expenditure, Fiscal policy, Fiscal stimulus, Population and demographics, Public debt

Keywords: Aggregate demand, Aging, Aging economy, Business cycle, Dummy variable, Fiscal Multipliers, Fiscal Policy, Fiscal policy shock, Fiscal spending shock, Fiscal stimulus, Global, Government spending shock, Labor supply, Output effect, Output effects of consumption shock, Output response, Output-boosting effect, Population Aging, Positive government spending shock, Ricardian effect, Sign of government spending shock matter, WP

Publication Details

  • Pages:

    23

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2020/092

  • Stock No:

    WPIEA2020092

  • ISBN:

    9781513537313

  • ISSN:

    1018-5941

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