Accounting for the financial consequences of demographic changes

Abstract

Many OECD countries are facing pronounced demographic changes, primarily in the form of ageing populations. It is therefore important to not only understand these effects, but to also monitor and analyse their impact on macroeconomic developments. This chapter explains the effects that demographic changes may have on the economy. It starts by explaining how households’ income, consumption and saving vary across age groups and how demographic changes can affect the saving ratio and the net worth of the household sector as a whole. It then analyses the link between demographic changes and governments’ finances and how the sustainability of government finances can be assessed in the light of changing populations. Finally, this chapter discusses the various ways in which pension systems are organised across countries, how they are recorded in the system of national accounts, and how the resulting data can (not) be used to assess their financial sustainability.