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LONGEVITY, GROWTH, AND INTERGENERATIONAL EQUITY: THE DETERMINISTIC CASE

Published online by Cambridge University Press:  07 July 2015

Torben M. Andersen
Affiliation:
Aarhus UniversityCEPRCESifo and IZA
Marias H. Gestsson*
Affiliation:
University of Iceland
*
Address correspondence to: Marias H. Gestsson, Institute of Economic Studies and Department of Economics, University of Iceland, Oddi by Sturlugata, 101 Reykjavik, Iceland; e-mail: marias@hi.is.

Abstract

Challenges raised by aging (increasing longevity) have prompted policy debates featuring policy proposals justified by reference to some notion of intergenerational equity. However, very different policies ranging from presavings to indexation of retirement ages have been justified in this way. We develop an overlapping-generations model in continuous time that encompasses different generations with different mortality rates and thus longevity. Allowing for trend increases in both longevity and productivity, we address the normative issue of intergenerational equity under a utilitarian criterion when future generations are better off in terms of both material and nonmaterial well-being. Increases in productivity and longevity are shown to have very different implications for intergenerational distribution. Further, the socially optimal retirement age, dependency ratio, and intergenerational burden sharing in the case of a trend increase in longevity are shown to depend on how individuals' utility for time/leisure is affected by age and longevity.

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Articles
Copyright
Copyright © Cambridge University Press 2015 

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