How Old Is Too Old?

Andrew Mason, University of Hawaii at Manoa
Ronald Lee, University of California, Berkeley

We examine how low fertility and population aging will influence the material standard of living using a refined measure of per capita consumption. The analysis emphasizes two important aspects of the impact of population change on the economy. The first is the change in intergenerational transfers due to changes in population age structure. As populations age the rise in public and private transfers to the elderly eventually undermines standards of living. A second factor, however, favors lower fertility and an older population than indicated solely by looking at intergenerational transfers. As fertility declines and population growth slows the capital costs of each new generation is reduced. We consider changes age profiles of consumption and labor income in response to population age structure and examine how changes in life expectancy influence the total fertility rate and corresponding age structure that maximize per capita consumption.