Welfare effects of demographic changes in a Ramsey growth model

Population ageing and decline are inescapable facts for Germany which are expected to have - especially due to the labour force decrease - negative impacts on the economy. In this context it is often referred to the possibility of countering potentially negative economic effects of population ageing by a fertility increase or immigration of people at the working age. Of course, changing fertility and immigration are both suited to reduce population ageing. But they influence the population structure, labour supply and thus the economic conditions in substantially different way. This discussion paper focuses on one aspect which is related to this issue. It is examined by simulations how different demographic scenarios affect consumption development and thus average welfare of individual cohorts. The analysis is based on a Ramsey growth model and refers to the demographic structure in Germany. The model results imply that welfare of cohorts with a life expectancy up to 50 years is higher without immigration. Instead, when a consumer faces a life expectancy higher than 50 years or will be born in the future immigration has a positive influence on welfare. Independently of his life expectancy and year of birth a consumer is worse off if fertility rises.