The Korean Economic Review
Welfare Implications of an Aging Population In Korea
Ki Seok HongYear 2007Vol. 23No. 2
This paper examines macroeconomic impacts of population aging inKorea using a computable general equilibrium (CGE) model of Auerbach-Kotlikoff (AK) type. The conventional AK model is extended in order toincorporate open economy features and endogenous fertility choices. Byapplying this model to the current demographic structure of Korea, weobtain the following results. First, welfare implications of population agingare rather complicated, since there are both winners and losers. Whilecurrent and future young generations will be harmed by population aging,current elderly generations benefit from the trend. Second, policy responsesto population aging should be considered with great caution. Fertilitypromoting policies, for instance, may entail substantial redistribution ofresources among individuals from current and future generations. Third,opening up the domestic capital market may be less controversial but a moreeffective policy response. By reducing fluctuations in the interest and wagerates caused by population aging, capital market integration can moderatewelfare variations among different generations.