Abstract
A three-region, three-good, fifteen overlapping generations model is built for the first time to analyze the interregional consequences of population aging in Canada. Each region of the model produces one differentiated good. Households work the first twelve periods of their life and retire in the last three. Households' behaviour is characterized by the life-cycle theory and their savings can be invested in any region since the financial capital market is considered perfectly integrated in Canada. The model includes an across Canada pay-as-you-go pension scheme. Regions differ from each other by the size of their economy, their specific local taxation and their demographic projections. Although the upcoming demographic change is inevitable across all Canadian regions, the intensity and speed of the change differ significantly across them. This paper investigates to what extent differences in the aging process will have asymmetric regional economic consequences. Two opposing forces are at work in the simulation experiments. On one hand, the economic integration of Canadian regions helps to harmonize the economic consequences of aging populations across regions. On the other hand, faster aging regions have to support more rapidly growing spending on public health care that increases differences among Canadian regions, especially on the fiscal balance.
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