Simulation of Macroeconomic Effects of Population Ageing (Application of General Equilibrium Overlapping Generations Model)

Population aging is one of the most important concerns of the last century in all over the world. In this study, in order to investigate the effect of demographic changes on some macroeconomic variables, Diamond two-stage overlapping generation model (OLG model) is designed. In this model, We consider an economy inhabited by two-period lived overlapping generations, the length of each period is considered thirty years. As life cycle perspective, the first period represents working period and the second one is considered as retirement period. This model consists of three sections: household, government and production which operate in a competitive market. This model is designed and adapted to the requirements of Iran and in the end, the results will be analyzed. In this model, data has been imported since 1940 and has been simulated by 2100. Simulation indicates that due to population aging, budget share of retirement pension is going to increases and share of public investment is going to decreases. In other words, population aging will crowd out public invsetment , also, annual per-capita output growth rate will reduce. As a consequence, economic growth will also slow down. due to increasing of population aging and decreasing of productive labour supply, government will increase taxes and retirement age. These policies will soften public investment cowding out.