TY  - JOUR
AU  - Fehr, Hans
AU  - Jokisch, Sabine
AU  - Kotlikoff, Laurence J
TI  - Will China Eat Our Lunch or Take Us Out to Dinner? Simulating the Transition Paths of the U.S., EU, Japan, and China
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11668
PY  - 2005
Y2  - October 2005
DO  - 10.3386/w11668
UR  - http://www.nber.org/papers/w11668
L1  - http://www.nber.org/papers/w11668.pdf
N1  - Author contact info:
Hans Fehr
University of Wuerzburg
Sanderring 2
97070 Wuerzburg, Germany
E-Mail: hans.fehr@uni-wuerzburg.de

Sabine Jokisch
University of Wuerzburg
Sanderring 2
D-97070 Wuerzburg, Germany,
E-Mail: sabine.jokisch@gmx.net

Laurence J. Kotlikoff
Department of Economics
Boston University
270 Bay State Road
Boston, MA 02215
Tel: 617/353-4002
Fax: 617/353-4001
E-Mail: kotlikoff@gmail.com
M1  - published as Hans Fehr, Sabine Jokisch, Laurence J. Kotlikoff. "Will China Eat Our Lunch or Take Us to Dinner? Simulating the Transition Paths of the United States, the European Union, Japan, and China," in Takatoshi Ito and Andrew K. Rose, editors, "Fiscal Policy and Management in East Asia" University of Chicago Press (2007)

AB  - This paper develops a dynamic, life-cycle, general equilibrium model to study the interdependent demographic, fiscal, and economic transition paths of China, Japan, the U.S., and the EU. Each of these countries/regions is entering a period of rapid and significant aging requiring major fiscal adjustments.

In previous studies that excluded China we predicted that tax hikes needed to pay benefits along the developed world's demographic transition would lead to capital shortage, reducing real wages per unit of human capital. Adding China to the model dramatically alters this prediction. Even though China is aging rapidly, its saving behavior, growth rate, and fiscal policies are very different from those of developed countries. If this continues to be the case, the model's long run looks much brighter.

China eventually becomes the world's saver and, thereby, the developed world's savoir with respect to its long-run supply of capital and long-run general equilibrium prospects. And, rather than seeing the real wage per unit of human capital fall, the West and Japan see it rise by one fifth by 2030 and by three fifths by 2100. These wage increases are over and above those associated with technical progress.
ER  -