From Here to There: Achieving Fiscal Sustainability Under Alternative Demographic Contingencies

Svend E. Hougaard Jensen*, Thorsteinn Sigurdur Sveinsson, Filipe Vieira

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

This paper develops a model with overlapping generations of households, productive public and private capital, and a golden rule of fiscal policy aimed at maximizing economic growth. Studying the transitional dynamics between steady states triggered by different exogenous shocks, we find that a waning fertility rate, coming through a weaker preference for having children, increased longevity, a decrease in subjective discounting or lower financial support for child rearing, will require a policy intervention to ensure convergence to the growth maximizing debt level. A simple calibration exercise shows that when faced with projected demographic aging the adjustments in public debt and public investment required for keeping the economy at its maximum steady state growth rate may be small.
Original languageEnglish
JournalDe Economist
Number of pages18
ISSN0013-063X
DOIs
Publication statusPublished - 24 Sep 2021

Bibliographical note

Epub ahead of print. Published online: 24 September 2021.

Keywords

  • Fiscal rules
  • Public debt
  • Economic growth
  • Demographic changes

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