Copyright (c) 2009 All rights reserved. http://works.bepress.com/vr0j Recent documents in Jose-Victor Rios-Rull en-us Sun, 31 May 2009 13:02:08 PDT 3600 http://works.bepress.com/vr0j/2 http://works.bepress.com/vr0j/2 Sun, 28 Jan 2007 13:04:43 PST In this paper I explore the quantitative implications for savings of population aging. In doing so, I pay particular attention to some features that have been partially over-looked in the literature. These features include the details of the population aging process, the initial conditions with respect to assets holdings, and the relation between age and household size. In order to do so, I develop recursive methods capable of dealing with overlapping generations environments where the population is stochastic. The main findings are: i) If population patterns revert to the averages of the last 50 years, the reduction in aggregate savings due to changes in the age structure of the population is small. ii) If, however, the demographic process is such that fertility patterns remain at their current low levels, then the effects of the aging of the baby boom are very large. iii) Initial conditions matter: both the choice for initial assets and the choice for the mechanism through which current fertility reverts to its long run average have implications for the economic allocations. And iv) The contribution of general equilibrium effects is to exacerbate the reduction of savings since population aging tends to make labor relatively scarce, and, therefore, to reduce rates of return of capital, which in turn reduces savings even further. José-Víctor Ríos-Rull D91 E27 J14 http://works.bepress.com/vr0j/1 http://works.bepress.com/vr0j/1 Sun, 28 Jan 2007 13:04:42 PST The United States relies for its government revenues more on the taxation of capital relative to the taxation of labor than countries in continental Europe do. In this paper we ask what can account for this. Our approach is to look at Markov perfect equilibria of a two-country growth model where both governments use labor, capital and corporate taxes to finance exogenously given streams of public expenditure under period-by-period balanced budget constraints. There is no commitment technology and the equilibrium policies are time-consistent. We find that differences in productivity, size, and government spending can account for the heavy American reliance on capital taxation. Paul Klein E61 E62 F41 F42