Volume 36 - Article 48 | Pages 1453-1490

The welfare state and demographic dividends

By Gemma Abío, Concepció Patxot, Miguel Sánchez-Romero, Guadalupe Souto

Print this page  Facebook  Twitter

 

 
Date received:02 Jul 2015
Date published:04 May 2017
Word count:8913
Keywords:aging, demographic dividend, intergenerational transfers, national transfer accounts (NTA), overlapping generations models, Spain, Sweden, United States, welfare state
DOI:10.4054/DemRes.2017.36.48
 

Abstract

Background: The demographic transition experienced by developed countries produces initial positive effects on economic growth ‒ the first demographic dividend ‒ which can be extended into a second demographic dividend if baby boomers’ savings increase capital accumulation. Nevertheless, aging might reverse this process if dissaving of elderly baby boomers and the pressure on the pay-as-you-go financed welfare state reduce savings and capital.

Objective: The aim of this paper is to evaluate the extent to which demographic dividends in Spain provide an opportunity for the reform of the welfare state system for an aging population.

Methods: We decompose demographic dividends using a general equilibrium overlapping generations model with realistic demography and public transfers from the National Transfer Accounts database. This allows us to capture the endogenous evolution of savings and capital accumulation and, hence, the second demographic dividend.

Results: When baby boomers enter the labor market, the purely demographic support ratio increases and this positive effect is extended by composition changes in the age structure of workers. When they start saving, the second demographic dividend arises, while its total net effect depends both on the strength of the aging process and on transfer size.

Conclusions: The derived decomposition shows that the second demographic dividend might also disappear. Sharp population aging in Spain implies that capital will shrink drastically after 2040. Before this, there seems to be margin for reforms; however, an extension of the welfare state toward the Nordic model would considerably reduce capital.

Contribution: This paper contributes to the debate on the effects of demographics on economic growth by decomposing demographic dividends and investigating the impact of different welfare state transfer systems on the second demographic dividend.

Author's Affiliation

Gemma Abío - Universitat de Barcelona, Spain [Email]
Concepció Patxot - Universitat de Barcelona, Spain [Email]
Miguel Sánchez-Romero - Österreichische Akademie der Wissenschaften, Austria [Email]
Guadalupe Souto - Universitat Autònoma de Barcelona, Spain [Email]

Other articles by the same author/authors in Demographic Research

» How many old people have ever lived?
Volume 36 - Article 54

» Intergenerational money and time transfers by gender in Spain: Who are the actual dependants?
Volume 34 - Article 24

Most recent similar articles in Demographic Research

» Household production and consumption over the life cycle: National Time Transfer Accounts in 14 European countries
Volume 36 - Article 32    | Keywords: intergenerational transfers, national transfer accounts (NTA)

» The forest and the trees: Industrialization, demographic change, and the ongoing gender revolution in Sweden and the United States, 1870-2010
Volume 36 - Article 6    | Keywords: Sweden, United States

» Intergenerational money and time transfers by gender in Spain: Who are the actual dependants?
Volume 34 - Article 24    | Keywords: national transfer accounts (NTA), Spain

» The reproductive context of cohabitation in comparative perspective: Contraceptive use in the United States, Spain, and France
Volume 32 - Article 5    | Keywords: Spain, United States

» An examination of black/white differences in the rate of age-related mortality increase
Volume 29 - Article 17    | Keywords: aging, United States