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How Should the Allocation of Resources Adjust to the Baby Bust?
Author(s) -
De La Croix David,
Mahieu Géraldine,
Rillaers Alexandra
Publication year - 2004
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2004.00183.x
Subject(s) - bust , economics , debt , overlapping generations model , fertility , decentralization , optimal allocation , resource allocation , monetary economics , microeconomics , labour economics , macroeconomics , boom , market economy , mathematical optimization , population , demography , mathematics , environmental engineering , sociology , engineering
Abstract We analyze the impact of a drop in fertility on the optimal allocation of resources in an overlapping generations economy where old workers care about leisure. We also characterize optimal dynamics and study the decentralization of the optimum by means of inter‐generational transfers and/or public debt. We conclude that the policy recommendations of postponing retirement is fragile and depend on preferences and technologies. Also, even when the optimal adjustment of public debt goes into the expected direction in the long run—i.e., public debt should decrease—this may not be the case during the transition.