The Developed World's Demographic Transition

Due to a period of low fertility rates and steadily rising life expectancies, almost all industrialized countries are experiencing an enormous increase in the number of old people. Sabine Jokisch analyzes the fiscal and macroeconomic impact of population aging in the US, the EU and Japan within a dynamic general equilibrium model with overlapping generations. In all three regions, the demographic transition leads to a dramatic increase in payroll tax rates. The study further simulates different reform proposals in order to analyze whether or not these could alleviate the demographic stresses. Radical pension reforms, such as full privatization of the pension system, are most promising.