1. The Aging Tax on Potential Growth in Asia (2022). Journal of Asian Economics, Vol. 81, p.101495. doi.org/10.1016/j.asieco.2022.101495
Abstract: Population aging is becoming a prominent issue in Asia, especially for developing countries where demographic changes have asserted a downward pressure on the rate of growth. This paper refers to such potential unwanted effects as an “aging tax” and analytically examines them from a neoclassical perspective, using a Diamond-type overlapping generations model with endogenous retirement, survival rate, and old-age productivity. Based on this setup, negative impacts exist if too many old workers that are sufficiently unproductive choose to defer retirement under the aging pressure, which drains resources from future generations. Numerical simulations show that an aging tax can reduce the potential per capita growth rate (technology-adjusted) by up to 0.12 percentage points annually for some countries in Asia. Our results highlight that countries with sufficiently large labor shares (due to a high ratio of self-employment or a manual labor-centric production) and inadequate educational attainment are potentially the most sensitive and vulnerable to population aging.
1. Fertility, Innovation, and Technological Spillovers in An Endogenous Growth Model with Overlapping Generations
Abstract: With technology and capital accumulation, skill premium has been expected to rise monotonically over time. However, since the late 1970s, Japan’s skill premium has exhibited a U-shaped relationship with capital stock per worker. To investigate this puzzle, we build a two-sector Diamond-type overlapping generations (OLG) model with endogenous R\&D-based growth, fertility, education, and skill differentials. The model highlights capital-complimentary technological change, spillover effects from the high-skilled to the low-skilled sector, and the quality of parents’ education expenses. Our analysis shows that the skill premium can decrease due to an oversupply of high-skilled workers thanks to a strong child quantity-quality tradeoff enabled by a substantially strong technological spillover effect. However, as the technology and capital stock accumulate, and the high-skilled worker ratio (university advancement rate) stays relatively constant, the skill premium is likely to rise again, thus forming a U-shaped curve. The model’s simulations are consistent with Japanese data since 1975. Counterfactual exercises further reveal the importance of spillovers on the steady states of skill premium and capital stock.
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