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Ageing and fiscal sustainability in a small euro area economy
2013
Autores
Ano de Divulgação
2013
Código JEL
E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
F41 - Open Economy Macroeconomics
H62 - Deficit; Surplus
J11 - Demographic Trends and Forecasts
Resumo
Population ageing is a key trend in Western economies. The impact of this trend will be widespread, affecting investment and saving decisions over the next decades, and
represents a major challenge to policymakers. Debt sustainability issues in euro area economies may (re)emerge, particularly given the pay-as-you-go nature of most public pension
systems. In a decentralised fiscal policy framework, ageing and the respective policy response might intensify the latent macroeconomic imbalances that underlie the ongoing
sovereign debt crisis. In this paper, we include a stylised pension system in an open economy New-Keynesian general equilibrium model with non-Ricardian agents. The model is
used to assess the macroeconomic impacts of ageing in a small euro area economy. The results suggest that the impact can be significant, depending on the magnitude and pace
of the ageing dynamics, the existing rules for social benefits and the policy response. It can be inferred from the results that supranational policy coordination at euro area level is
crucial to foster economic and financial stability.
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