Local Shocks and Regional Dynamics in an Aging Economy

This paper develops a dynamic spatial model with local capital adjustments and demographics that change with fertility rates. Individuals decide where to live and whether to work, and their decisions vary over the life cycle with changes in working life expectancy and fundamentals. Since the elderly move less than the young, population aging means more people would be trapped in locations adversely affected by shocks. However, a larger share of immobile workers can slow the capital adjustment that population outflows would cause. Applying this model to Japan, I find that population aging can mitigate welfare losses from a negative shock