Macroeconomics and Age Structure in a Welfare State – Sweden 1946 – 2005

Abstract

During the last years, it has been increasingly acknowledged that shifts in the population’s age structure can have important effects on key determinants of economic development, such as fertility, savings, and human capital investment. In general, these models have focused on the very long run where stable equilibria are established. Similarly, most macroeconomic models assume a stable macro-demographic situation characterized by constant life expectancy, and constant or zero population growth. Demographic transition theory, however, implies that the transition from one stable combination of life expectancy and fertility to another is a process that takes several decades, or even centuries. Moreover, in most countries both life expectancies and fertility rates are continuously changing, not to speak of migration flows. Thus, the macroeconomic data we observe are from economies in demographic disequilibrium, with huge variation in the age distribution of the population. This variation in the age distribution defines a largely predetermined variation in economic fundamentals that should be taken into account in order to correctly understand actual economic development.