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First Quarter 2016, 
Vol. 98, No. 1
Posted 2016-03-18

Aging and Wealth Inequality in a Neoclassical Growth Model

In this article, the author uses a version of the neoclassical growth model with overlapping generations of individuals to investigate the effect of aging on wealth inequality. When an economy’s population becomes older—that is, when the proportion of individuals 65 years of age and older increases—two effects are at work: a direct effect from the changing age composition of the population and an indirect, equilibrium effect from the change in asset holdings by owner’s age. The main result is that wealth inequality in an aging population may decrease or increase depending on the cause of the aging. An increase in life expectancy tends to increase inequality, whereas a reduction in the population growth rate tends to reduce it.