Dissertation

Table 3.19: The effect of population aging on the calibrated model.


0.92 0.78 0.74 0.71
Experiment Baseline 1 2 3
Variable
Social security tax rate 0.104 0.125 0.139 0.156 Replacement rate for the poorest

households

Rate of return 0.0286 0.0249 0.022 0.0193 Wage rate 1.26 1.28 1.3 1.32 Output 7.41 9.08 9.77 10.49 Capital 25.17 31.99 35.47 39.2 Labor 3.83 4.61 4.88 5.16 Capital-output ratio 3.39 3.53 3.63 3.74

75

to a lower real rate of return, higher wages, output, capital stock and labor supply.

The driving forces behind these optimal tax changes predicted by the model also show a

similar pattern. In Table 3.20, I report how the IRRs from the social security program for

each efficiency group are affected by population aging, and in Table 3.21 I report the life-

cycle labor supply responses from the households (in efficiency units). Note that in both the

tables, I hold the social security tax rate fixed at the corresponding baseline level. Table

3.20 shows that the asymmetric impact of population aging on the IRRs of the different

efficiency groups is not sensitive to the coefficients of the underlying age-dependent efficiency

profile: across the baseline and experiment 3, the IRRs of the five efficiency groups decline

by roughly 17, 30, 39, 45 and 51%, respectively. Also, Table 3.21 shows that the asymmetric

changes in household labor supply are behind this: across the baseline and experiment 3,

labor supply (in efficiency units) of the five efficiency groups increase by about 38, 40.2,

40.8, 41 and 41.2%, respectively.