Chapter

Demographic Change, Relative Factor Prices, International Capital Flows, and Their Differential Effects on the Welfare of Generations

Dirk Krüger and Axel Börsch-Supan

Edited by Alexander Ludwig

in Social Security Policy in a Changing Environment

Published by University of Chicago Press

Published in print June 2009 | ISBN: 9780226076485
Published online February 2013 | e-ISBN: 9780226076508 | DOI: http://dx.doi.org/10.7208/chicago/9780226076508.003.0012
Demographic Change, Relative Factor Prices, International Capital Flows, and Their Differential Effects on the Welfare of Generations

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This chapter evaluates the welfare consequences of the demographic transition per se and not just the alternative Social Security reform scenarios, as well as in the analysis of the distributional consequences of changing factor prices due to population aging. It is reported that that the rate of return to capital can be expected to decrease by about 80–90 basis points until 2050, with a corresponding increase of wages if PAYGO Social Security systems are reformed such that contribution rates are held constant. It is also shown that increasing the mandatory retirement age by five years is shown to mitigate substantially these losses and to significantly increase the welfare gains of newborns. The welfare gains for newborns are actually larger than what is computed because in addition, these newborns are expected to live longer than the current generation.

Keywords: Social Security; factor prices; capital; wages; retirement age; newborns

Chapter.  12546 words.  Illustrated.

Subjects: Public Economics

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