Abstract
This paper presents stochastic projections for 13 categories of social spending in New Zealand over the next 50 years. These projections are based on detailed demographic estimates covering fertility, migration and mortality disaggregated by single year of age and gender. Distributional parameters are incorporated for all of the major variables, and are used to build up probabilistic projections for social expenditure as a share of gross domestic product using simulation methods. Emphasis is placed on the considerable uncertainty involved in projecting future expenditure levels.
Highlights
The aim of this paper is to produce stochastic projections of social expenditure in New Zealand over the fifty-year period 2011 to 2061
This paper reports projections of social expenditure in New Zealand, over the fifty-year period 2011 to 2061, which explicitly model uncertainty associated with a wide range of variables using a ‘stochastic’ approach
Focussing on ‘pure ageing’ results, the projections reveal considerable uncertainty regarding the ratio of total social expenditure to GDP as the time period increases
Summary
This paper reports projections of social expenditure in New Zealand, over the fifty-year period 2011 to 2061, which explicitly model uncertainty associated with a wide range of variables using a ‘stochastic’ approach. A large number of projections of the variables of interest (such as total social expenditure in relation to GDP) can be made, in each case taking a random draw from each of the specified distributions This generates a distribution of values in each year of the projection period, whose properties can be examined. Projected labour force participation rates are combined with age and gender specific unemployment rates to generate the size of the workforce This is multiplied by average productivity per worker to obtain GDP. Focussing on ‘pure ageing’ results (whereby per capita social expenditure costs in each category grow at the same rate on average as productivity growth), the projections reveal considerable uncertainty regarding the ratio of total social expenditure to GDP as the time period increases. A consistent finding was the tendency for the average expenditure ratio to fall slightly beyond around 2040, following the death of the post World War II baby boom generations
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