Aging and Population Policy in Developing Economies: Welfare Implications Across Generations

Tanyasorn Ekapirak
Minchung Hsu, GRIPS
Pei-Ju Liao, National Taiwan University

This paper constructs a two-sector general-equilibrium overlapping-generations model with endogenous fertility and education choices to investigate the impacts of aging in a developing economy, corresponding tax financing approaches and population policies. We focus on those developing economies with low fertility and rapid population aging. The existence of a large informal sector in developing economies is particularly characterized in the model. We find that population aging may enlarge the formal sector and benefit economic development although it increases the fiscal burden. Related policy reforms to alleviate tax burden and their welfare implications along the transitions are further discussed. We find that child-rearing cost will be beneficial only in the short run. By contrast, educational subsidy will encourage the accumulation of human capital, enlarge the formal sector, and reduce the tax burden. We further find that without considering the informal sector in developing countries, the policy suggestion will be significantly biased.

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 Presented in Session 2. Flash Session: Population Aging, Consequences, and Public Policies