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Demographic Obstacles to European Growth

Author

Listed:
  • Thomas Cooley

    (New York University)

  • Edwin Nusbaum

    (University of California, Santa Barbara)

  • Espen Henriksen

    (University of California, Davis)

Abstract
Since the early 1990’s there have been persistent slowdowns in the growth rates of the four largest European economies: France, Germany, Italy, and the United Kingdom. This persistence suggests a low-frequency structural change is at work. Aging populations, both in terms of longer individual life expectancies and declining fertility have caused a shift in the age-cohort distribution. Growth accounting identifies the following five sources of economic growth: total factor productivity, capital accumulation, labor supply on the intensive and extensive margin, and population growth. Changing demographics affect all these five margins. The effects of aging populations on economic growth are also exacerbated by the pension systems in place. In order to fund increasing liabilities with a shrinking tax base, tax rates must increase to balance budgets. This will impose distortions to individual factor-supply choices, providing further headwinds for economic growth. We quantify the additional growth effects resulting from these distortions.

Suggested Citation

  • Thomas Cooley & Edwin Nusbaum & Espen Henriksen, 2019. "Demographic Obstacles to European Growth," 2019 Meeting Papers 1352, Society for Economic Dynamics.
  • Handle: RePEc:red:sed019:1352
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    References listed on IDEAS

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    Cited by:

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    2. Papetti, Andrea, 2021. "Demographics and the natural real interest Rate: historical and projected paths for the euro area," Journal of Economic Dynamics and Control, Elsevier, vol. 132(C).
    3. María del Carmen Ramos-Herrera & Simón Sosvilla-Rivero, 2020. "Fiscal Sustainability in Aging Societies: Evidence from Euro Area Countries," Sustainability, MDPI, vol. 12(24), pages 1-20, December.
    4. Mammen, Enno & Martínez-Miranda, María Dolores & Nielsen, Jens Perch & Vogt, Michael, 2021. "Calendar effect and in-sample forecasting," Insurance: Mathematics and Economics, Elsevier, vol. 96(C), pages 31-52.
    5. Taguchi, Hiroyuki & Latjin, Mirani, 2022. "The effects of demographic dynamics on economic growth in EU economies: A panel vector autoregressive approach," MPRA Paper 113596, University Library of Munich, Germany.
    6. Andrea Papetti, 2021. "Population aging, relative prices and capital flows across the globe," Temi di discussione (Economic working papers) 1333, Bank of Italy, Economic Research and International Relations Area.
    7. Senel, Gonca & Wright, Mark L.J., 2021. "With age comes immaturity: Do countries with older populations issue shorter maturity debt?," Economics Letters, Elsevier, vol. 209(C).

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    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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