Population Aging, Marginal Propensity to Consume, and Economic Growth

Abstract

This paper explores the mechanism of population aging affecting economic growth by influencing marginal propensity to consume. We find that population aging has both a positive and a negative effect on economic growth. We calculate the critical state of the two effects and draw the conclusion that if marginal propensity to consume is greater than the critical value, the decrease of marginal propensity to consume has a more directly impact on consumption and, therefore, that the negative influence of the decreasing consumption dominates the impact on economic growth. Conversely, if the marginal propensity to consume is less than the critical value, capital per capita is affected more and, therefore, the positive influence of the rising capital per capita on economy is dominant.