Dr. Charlie Nusbaum Analyzes the Impact of Aging Populations on European Growth in a New Article

The growth rates of the four largest European economies (France, Germany, Italy, and the United Kingdom) have slowed in recent decades, and the persistence of the slowdown suggests that a low-frequency structural change is at work. Longer life expectancy and declining fertility rates have led to gradually aging populations, and these demographic trends contribute to economic growth directly through aggregate savings and labor supply decisions and indirectly through distortionary taxes needed to fund pension systems.

Senior Associate Dr. E. Charlie Nusbaum coauthored an article in the European Economic Review that provides a structural framework to quantify these effects and make growth projections for predicted demographic change. The article shows that demographic change contributed negatively to economic growth during the 1995-2015 period, and that the growth contributions will decline further in the next two decades. Several pension reforms have been suggested to increase late-life labor supply – and, through that, output growth. Analyzing these proposed reforms, the authors provide a measure to evaluate their welfare consequences, both in aggregate and for different segments of the population.

The full article, “Demographic Obstacles to European Growth,” is available below. Dr. Nusbaum also coauthored a VoxEU article summarizing the key takeaways of the European Economic Review article.