As Korea’s population growth rate has rapidly declined, the concerns over low fertility rate and population aging have been spread out in public. Accordingly, this study analyzes the effect of demographic change on economy and considers the implication of the empirical result.
In policy simulation using a macro-fiscal model, if the dependency ratio to the aged, reflecting demographic change rises, potential GDP would be weakened by contraction in labor and capital sector, and real GDP would be decreased due to the reduction of domestic demand, and compared with baseline, expanding on expenditure in social welfare could worsen on government fiscal balance.
This study suggests that we should consider a countermeasure against demographic change. It is required for us to take consistent measures to raise the fertility rate and prepare fiscal demand to support the aged and raise participation rate of woman in the long-run.