Intergenerational Impact Analysis of the Expansion of Transfer Payments Reflecting Demographic Changes

Published on December 30, 2021
Published by Population & Strategy Analysis Division

   The rapidly declining birth rate and the COVID pandemic required a more supportive fiscal policy role, which resulted in increased government expenditures. We tried to address the economic impact of these expenditures, taking into consideration not only the positive effects, but also the future burden this spending will have on future gernerations.For this reason, this report sought to derive policy implications by establishing an economic model (OLG-CGE: overlapping generations-computable genereration model) to analyze age-specific impact and macroeconomic impact on mid- to long-term economic growth and intergenerational burden.
   Upon analysis, gross production is expected to increase due to increased government expenditures, but it will decrease as soon as government starts to be repaid for financing purposes. Looking at these effects by generation, while the current generation is expected to have welfare increase through government expenditures, future generations are likely to have less welfare due to the burden of debt repayments. Furthermore, even within current generations, the elderly and the youth are beneficiares of government expenditures, while the working-age group is not. However, if the fiscal policy affects to secure a social safety net which leads to increase total fertility rate and to increase total factor productivity, the welfare decrease of future generations can be offset and government expenditure for the current generation may have the positive effect on the utility of future generations.
   Considering that the expansion of government expenditures can place burdens on future generations, it is necessary to be noteworthy that there is no imbalance among generations by allocating financial resources efficiently in ways that will raise mid- to long-term productivity.