The fiscal impact of population aging in Brazil: 2005-2050

Abstract

In this paper, we estimate the fiscal impact on population aging in Brazil from 2005 through 2050. We focus on three key areas of public spending: education, pensions, and health care. Our projections are based on a simple model in which aggregate public expenditures are driven by changes in the age structure of the population as well as by changes in the average public benefits received per age. We assess the likely increases in public spending over the coming decades, contrasting the divergent trends in public spending on education, pensions, and health care. We also assess the magnitude of these changes in terms of growth in spending relative to GDP annually through 2050 and estimate the present value of the increase in spending. We find that changing population age structure will lead to increasing cost pressures in health care and especially in pensions. Our projections show that beginning around 2015, public spending will begin a sustained and rapid increase lasting several decades rising from 18% of GDP to reach 27% of GDP by 2050. The needs for increased investment in students will compete against those for sustaining pension benefits and facing increasing demands for health care. In particular, our projections show that an ambitious educational reform aimed at reaching the OECD level of investment per youth within a decade would amount to only about one fourth of the projected cost increases in public health and pension programs.