Chapter

Will China Eat Our Lunch or Take Us to Dinner?

Hans Fehr, Sabine Jokisch and Laurence J. Kotlikoff

in Fiscal Policy and Management in East Asia

Published by University of Chicago Press

Published in print November 2007 | ISBN: 9780226386812
Published online February 2013 | e-ISBN: 9780226387062 | DOI: http://dx.doi.org/10.7208/chicago/9780226387062.003.0006
Will China Eat Our Lunch or Take Us to Dinner?

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Using a dynamic, life-cycle, general equilibrium model, this chapter investigates the interdependent demographic, fiscal, and economic transition paths of China, Japan, the United States, and the European Union, each of which is entering a period of rapid and significant aging that will require major fiscal adjustments. The life-cycle model takes into account various factors such as age-, region-, and year-specific fertility and mortality rates; lifespan uncertainty; age-, region-, and year-specific pension; disability, health care, and other government-transfer policies; region- and year-specific government purchases of goods and services; region-specific personal wage income, capital income, corporate income, and payroll taxes; international capital mobility; exogenously specified age-, earnings class-, region-, and year-specific immigration; and region- and cohort-specific time preference rates. Understanding how national aging and fiscal policy will affect the macroeconomies of these regions is important. If the macroeconomic response is favorable, governments can do less and take more time to deal with what is coming. If the opposite is true, they must do more and do it more quickly.

Keywords: fiscal policy; China; Japan; United States; European Union; aging; life-cycle model; fertility; income; capital mobility

Chapter.  24692 words.  Illustrated.

Subjects: Business and Management

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