Population aging and cross-country redistribution in integrated capital markets

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IHS Economics Series ; No. 337

Classification and Topics

• Classification: Wirtschaft ; Computable General Equilibrium Models ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General ; Open Economy Macroeconomics ; Demographic Trends, Macroeconomic Effects, and Forecasts
• Subject: population aging ; pension reforms ; capital markets ; cross-country spillovers ; overlapping-generations modelling

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Davoine, Thomas
• Event: Veröffentlichung
• (who): Institute for Advanced Studies (IHS)
• (where): Vienna
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/183480
• Last update: 10.03.2025, 11:44 AM CET