The effect of ageing on the European economies in a life-cycle model

Aging is going to be an important factor affecting the functioning of European economies in the forthcoming decades. It is estimated that in most European countries the old-dependency ratio is going to increase significantly. The question arises about the effects of this process on the economy and what kind of policies would attenuate the potential problems. This paper addresses this issue by showing under “no-policy change” scenario one can expect a build-up of significant imbalances in four biggest euro area economies, which highlights a need of deeper reforms in the institutional design of the euro area.