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Abstract
Longer lives and fertility far below the replacement level of 2.1 births per woman are leading to rapid population aging in many countries. Many observers are concerned that aging will adversely affect public finances and standards of living. Analysis of newly available National Transfer Accounts data for 40 countries shows that fertility well above replacement would typically be most beneficial for government budgets. However, fertility near replacement would be most beneficial for standards of living when the analysis includes the effects of age structure on families as well as governments. And fertility below replacement would maximize per capita consumption when the cost of providing capital for a growing labor force is taken into account. Although low fertility will indeed challenge government programs and very low fertility undermines living standards, we find that moderately low fertility and population decline favor the broader material standard of living.
Adjusting to fewer kids and more elderly
In many countries, populations are aging as retirees live longer, and the rates of population growth have declined as fewer babies are born. These demographic changes have evoked alarmist predictions that future retirement pensions will need to be curtailed, constraining future generations' purchasing power. Lee et al. point out that compensatory factors, such as more women working more years, along with a better educated workforce, may mitigate these demographic impacts (see the Perspective by Smeeding).
↵† National Transfer Accounts (NTA) Network authors with their institutions appear at the end of this paper.
