Population Forecasts, Fiscal Policy, and Risk

Abstract

This chapter describes stochastic population forecasts as they relate to the development of policies related to government spending on the elderly, mainly in the context of the industrialized nations. I begin by discussing methods for projecting demographic rates, mortality, fertility, and immigration, using probabilistic forecasts. I show how these are combined to make stochastic forecasts of population number and composition, illustrating with forecasts of the US population. Next I discuss how demographic models and economic models can be combined into an integrated projection model of transfer systems such as Social Security. I show how these integrated models describe various dimensions of policy-relevant risk and discuss the nature and implications of risk in evaluating policy alternatives. Finally, I consider briefly the distinct issues in the projection of health care spending.