Macroeconomic and Policy Implications of Population Aging in Brazil

Abstract

This paper analyzes the macroeconomic
 implications of population aging in Brazil. Three
 alternative yet complementary methodologies are adopted, and
 depending on policy responses to the fiscal implications of
 aging, there are two main findings: First, saving rates
 could increase and not necessarily fall as a consequence of
 aging in Brazil -- thus contradicting conventional views.
 Second, lifetime wealth across generations could increase --
 as capital deepening generates a second demographic
 dividend. Two policy responses to aging are emphasized:
 First, a structural policy response of linking mandatory
 retirement (or entitlement) ages to increasing life
 expectancy would boost labor supply and reduce the fiscal
 costs of aging. Second, in terms of preferable parametric
 policy responses, the second demographic dividend will be
 promoted to the highest extent by keeping taxes and debt
 unchanged while allowing public pensions to adjust downward.
 Such a policy response would keep pensions from further
 crowding out private saving -- thus balancing capital
 accumulation with intergenerational income distribution. In
 conclusion, Brazil will not necessarily experience a fall in
 saving and growth, but if government policies are
 appropriately, adequately, and timely formulated, population
 aging is likely to lead to substantial capital deepening and
 increases in lifetime income, wealth, and welfare.