Government stimulus checks don't work nearly as well in countries where the population is getting older.
Traditional fiscal policy relies on a working-age population to increase labor and consumption in response to government spending. In older societies, households prioritize life-cycle savings and are less responsive to labor incentives, reducing the 'multiplier' effect of government stimulus by nearly 18%.
Population aging and fiscal multipliers
SSRN · 6435571
This paper examines the consequences of population aging for the magnitude of fiscal multipliers. Using structural vector autoregressions (SVARs) for a broad cross-section of countries, we find that fiscal multipliers following a positive government spending shock are, on average, positive, larger in economies with a younger age structure, and negatively correlated with the old-age dependency ratio – a key measure of population aging. To explain these empirical findings, we develop a medium-scal