Working Paper: CEPR ID: DP10887
Authors: Carlo A. Favero; Vincenzo Galasso
Abstract: Demographic trends in Europe do not support empirically the secular stagnation hypothesis. Our evidence shows that the age structure of population generates less long-term growth but positive real rates. Policies for growth become very important. We assess the relevance of the demographic structure for the choice between macro adjustements and structural reforms. We show that middle aged and elderly individuals have a more negative view of reforms, competitiveness and globalization than young. Our results suggest that older countries -- in terms of share of elderly people -- should lean more towards macroeconomic adjustments, whereas younger nations will be more supportive of structural reforms.
Keywords: Europe; Growth; Real Interest Rates; Stochastic Mortality
JEL Codes: J11; J14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| demographic trends (J11) | lower long-run potential growth rate (O49) |
| aging population (J14) | lower long-run potential growth rate (O49) |
| higher share of elderly individuals (J14) | reduced productivity (O49) |
| increase in life expectancy (I14) | negative effect on output per capita (F62) |
| age structure of population (J11) | real interest rates (E43) |
| elderly population (J14) | counteracts savings effects of increased life expectancy (D15) |
| middle-aged and elderly individuals (J14) | less supportive of reforms (E69) |
| less supportive of reforms (E69) | influences policy directions (F68) |