NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Costs and Benefits of Caring: Aggregate Burdens of an Aging Population

Finn Kydland, Nick Pretnar

NBER Working Paper No. 25498
Issued in January 2019
NBER Program(s):Aging, Economic Fluctuations and Growth, Health Economics

Throughout the 21st century, population aging in the United States will lead to increases in the number of elderly people requiring some form of living assistance which, as some argue, is to be seen as a burden on society, straining old-age insurance systems and requiring younger agents to devote an increasing fraction of their time toward caring for infirm elders. Given this concern, it is natural to ask how aggregate GDP growth is affected by such a phenomenon. We develop an overlapping generations model where young agents face idiosyncratic risk of contracting an old-age disease, like for example Alzheimer's or dementia, which adversely affects their ability to fully enjoy consumption. Young agents care about their infirm elders and can choose to supplement elder welfare by spending time taking care of them. Through this channel, aggregate GDP growth endogenously depends on young agents' degree of altruism. We calibrate the model and show that projected population aging will lead to future reductions in output of 17% by 2056 and 39% by 2096 relative to an economy with a constant population distribution. Curing diseases like Alzheimer's and dementia can lead to a compounded output increase of 5.4% while improving welfare for all agents.

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Document Object Identifier (DOI): 10.3386/w25498

 
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