POPULATION AGING IN THE OVERLAPPING GENERATIONS MODELS FOR THAILAND

Abstract

This study develops three stochastic overlapping generations (OLG) models to investigate the effects of mandatory retirement age policy and child allowance policy in an aging economy. From a benchmark model, two features are added respectively in each extended model, namely an exogenous longer retirement age and an endogenous fertility rate, representing the number of children. The calibrated parameters of the Thai economy and population were used, these models provided simulation results to measure the effects of each policy on the macroeconomic variables, including output, capital accumulation, and lifetime consumption, as well as the government transfers and the Pay-as-you-go (PAYG) pension. First, the results showed that a higher mandatory retirement age is always beneficial in the long run for PAYG pension budgets and for government elderly transfers, and thus future generations may enjoy greater consumption than the current ones do. On the contrary, in the long run, such policies can create downsizing effects on capital accumulation and on output. Second, the policy of a higher child allowance is always beneficial in the long run for PAYG pension budgets, the government elderly transfers, and a higher fertility rate with more newborns. The effects on lifetime consumption, capital accumulation and output are similar to previous models, while the net effects remained positive on returns to capital and negative on the wage rate.

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