Age-related Expenditures Research Articles

Cluster analysis of new EU member states’ pension systems

The aging of European societies is reshaping their population pyramids. The increase in life expectancy and the decrease in the fertility rate lead to an increasing share of the elderly population. This leads to rising age-related expenditures, especially public pension expenditures to GDP. Consequently, economies are reforming their pension systems to make them more sustainable. Next to the aging-related challenges, the new EU members, eleven post-socialist economies: Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia share a similar history of restructuring of their pension systems and establishment of a multi-pillar system. The objective of this article is to examine the similarities and differences between the pension systems of the selected post-transition economies of the European Union to establish the basis for further research, simulations, and assumptions on the impact of future pension reforms. For that purpose, we apply Ward's clustering methodology on three variable groups in three selected years: 1996, 2006, and 2016. The idea of clustering economies in three years with a 10-year gap is relevant since it reveals how the cluster structure is changing over time. Additionally, three periods represent three different phases in the pension systems' development. Three groups of variables were used for cluster analysis. First, pension systems' characteristics include average effective retirement age, pension expenditure, and replacement rate. Second, demographics encompass fertility rate, life expectancy at the age of 65, net migration rate, and old-age dependency ratio. Third, the macroeconomics and labour market variables refer to the GDP growth rate, real labour productivity, labour force participation rate, and the unemployment rate. Results of cluster analysis show that the composition of the countries in the extracted clusters changes significantly, both throughout the observed period and when looking at different variable groups. Our results revealed that the pension systems of economies with later retirement proved to be more sustainable, during the three observed periods, due to lower pension expenditures that are in turn positively reflected in the favourable economic conditions and their labour market.

Could the decrease in Belgian government debt-servicing costs offset increased age-related expenditure?

This paper argues that none of the secular trends that have driven down real interest rates over the past decades is likely to reverse in the near future. Government debt-servicing costs have therefore decreased significantly and can be expected to decrease further over the coming years. We calculate the direct gains accruing to the Belgian government from lower net debt interest payments and contrast them to the projected future increases in age-related expenditures. If interest rates remain on their current levels and savings on interest payments are channelled to cover the increases in age-related expenditures, they will cover two thirds of financing needs in these areas until 2030.

Ageing-friendly cities for assessing older adults\u2019 decline: IoT-based system for continuous monitoring of frailty risks using smart city infrastructure

Background and aimsPopulation ageing is a typical phenomenon of developed countries with a great influence in their economy and society, with an increment on age-related expenditures. Disruptive solutions are needed to deploy new cost-effective and sustainable solutions for aging well and independent living of our seniors. In this sense, new technological paradigms as IoT technologies and smart cities have the potential to become main drivers for innovation uptake. The purpose of this study is to describe a longitudinal cohort study in smart cities for assessing early frailty symptoms deploying an unobtrusive IoT-based system in the Madrid city.MethodsA system was deployed in the Madrid city with the participation of 45 elderly users for an average of 71 weeks. Metrics were assessed by the available sensors in combination with the open data infrastructure of Madrid. Metrics include activity of the user, weekly visits pattern and transport daily usage pattern. System engagement was also monitored. Participants are assessed bimonthly with health and functional questionnaires.Results45 older adults with a mean age of 79.1 years. Participants activity patterns monitor detected changes during potentially risky situations that usually were not reported by traditional assessment tools. Analysis of data collected enabled to identify absence of frailty (robust or post-robust status)Discussion and conclusionsThe results demonstrate the feasibility of engaging older adults with an IoT-based system and the successful collection of their activity metrics. Variation in the activity patterns may be a first sign of functional decline and enables to identify potential areas of early intervention.

Promoting active ageing and longer employment in Romania

Beginning with the last decades of the 20th century, a marked increase in life expectancy, in addition to the decreased inbirth rates, shifted the age structure of the population towards older people, not just in Europe, but worldwide. The Romanian Government adopted the National Strategy and the Strategic Action Plan for 2014-2020 that establishes a framework for promoting active ageing and employment at older ages in Romania. The 2018 Ageing Report provides comparison between the Member States concerning the most recent demographic trends and projections of labour forces and age-related expenditure.

Creating fiscal space to pay for pension expenditure in Asia

Many Asian countries are projected to age rapidly and will need to devote a larger proportion of their GDP to finance age-related expenditure including on pensions. Governments therefore will have to create additional fiscal space to fund such expenditure to sustain the credibility of existing pension promises. This paper presents an exploratory framework for creating fiscal space. The framework has three interrelated components: enhancing broad-based growth, improving revenue performance and better expenditure management. The paper distinguishes between funding of pensions, i.e. the share of GDP devoted to pensions, and financing of pensions, i.e. the different methods and instruments used to finance pensions. The focus of the paper is on funding, and the framework relies on both the income–expenditure flows and the government balance sheet to create fiscal space. Several examples of how potential fiscal space can be created in Asian economies of China, India and Indonesia to make their pension promises more credible are provided. The paper emphasises that the measures discussed for enhancing fiscal space should not be undertaken as a purely technical exercise, but should be combined with managing the political economy in a given context.

Aging population and public pensions: Theory and macroeconometric evidence

Rapidly aging population in high-income countries has exerted additional pressure on the sustainability of public pension expenditure. We present a theoretical model of public pension expenditure under endogenous human capital, where the latter facilitates a substantial decrease in equilibrium fertility rate alongside the improvement in life expectancy. We demonstrate how higher life expectancy and human capital endowment facilitate a rise of net replacement rate. We then provide and examine an empirical model of old-age expenditure in a panel of 33 countries for the period 1998-2008. Our results indicate that increases in effective retirement age and total fertility rate would reduce age-related expenditure substantially. While higher net replacement rate would alleviate the risk of old-age poverty, further increases would add considerable pressure on the fiscal sustainability of public pensions.

Generational accounts for Belgium: fiscal sustainability at a glance

This paper uses generational accounts to analyse the long term sustainability of Belgian public finances. We derive age-profiles of detailed tax and expenditure categories from micro data and microsimulation models, and plug them into a long run demographic projection. We assess fiscal long term sustainability under current fiscal and budgetary policy for the base year 2010, and perform simulations of counterfactuals to determine the relative contribution of the most important factors of the long run unsustainability. This update of the generational accounts for Belgium shows that, not unexpectedly, the budgetary situation in Belgium violates the intertemporal budget constraint and hence is unsustainable in the long run. The current level of explicit debt, however, only plays a minor role in explaining this sustainability problem. Ageing and the related increase in age related expenditures are the main drivers of the long run fiscal imbalance and the high level of implicit debt. We disentangle the Belgian generational accounts into their regional components and show that the major explanation for regional differences in generational accounts is not divergent demographic projections, but the wide differences in socio-economic situations, as revealed by the region specific age-profiles.

Patterns of Long Term Care in 29 European countries: evidence from an exploratory study

BackgroundThe challenges posed by the rapidly ageing population, and the increased preponderance of disabled people in this group, coupled with the rising level of public expenditure required to service the complex organization of long term care (LTC) delivery are causing increased pressure on LTC systems in Europe. A pan-European survey was carried out to evaluate whether patterns of LTC can be identified across Europe and what are the trends of the countries along them.MethodsAn ecological study was conducted on the 27 EU Member States plus Norway and Iceland, referring to the period 2003-2007. Several variables related to organizational features, elderly needs and expenditure were drawn from OECD Health Data and the Eurostat Statistics database and combined using Multiple Factor Analysis (MFA).ResultsTwo global Principal Components were taken into consideration given that their expressed total variance was greater than 60%. They were interpreted according to the higher (more than 0.5) positive or negative correlation coefficients between them and the original variables; thus patterns of LTC were identified. High alignment between old age related expenditure and elderly needs characterizes Nordic and Western European countries, the former also having a higher level of formal care than the latter. Mediterranean as well as Central and South Eastern European countries show lower alignment between old age related expenditure and elderly needs, coupled with a level of provision of formal care that is around or slightly above the average European level. In the dynamic comparison, linear, stable or unclear trends were shown for the studied countries.ConclusionsThe analysis carried out is an explorative and descriptive study, which is an attempt to reveal patterns and trends of LTC in Europe, allowing comparisons between countries. It also stimulates further researches with lower aggregated data useful to gain meaningful policy-making evidence.Please see related article: http://www.biomedcentral.com/1741-7015/9/124

The New Medium-Term Budgetary Objectives and the Problem of Fiscal Sustainability after the Crisis

The paper analyses the medium-term objectives (MTOs) recently adopted by the EU Member States as a reference for the multilateral budgetary surveillance, assessing the ability of the new MTOs to promote long-term fiscal sustainability. The paper calibrates the (yet undisclosed) algorithm for computing the minimum budgetary targets that EU countries can declare as MTO and discusses two novel features of the algorithm: a supplementary debt-reduction effort requested from high-debt countries, and the partial frontloading of the expected future increases in age-related expenditure -the cost of ageing-. The paper evaluates the impact of the crisis on EU countries‟ current as well as future MTOs through the channels of higher public debt, lower growth potential, and higher cost of ageing. On the basis of alternative scenarios for macroeconomic and budgetary conditions as of 2012 -when the next revision of MTOs is scheduled-, the paper concludes that prospective MTOs would be more stringent than the current ones. Therefore, a path for gradual fiscal tightening is already embedded into the European fiscal framework and should be considered when discussing exit strategies. Finally, an alternative indicator linking MTOs to the current fiscal and financial imbalances is presented.

Macroeconomic Effects and Policy Challenges of Population Aging

This paper simulates the macroeconomic effects of population aging in a dynamic overlapping generations model of a small open economy. The model is calibrated to data for the Czech Republic, where population aging is proceeding at a pace comparable to that in other advanced countries in Europe. Simulations show that population aging is likely to slow economic growth and improvements in living standards. Although reforms to raise labor force participation and productivity growth can mitigate these adverse effects, they are unlikely to eliminate the need for fiscal reforms. The budget will come under pressure from rising age-related expenditures, and consolidation will be needed to preserve debt sustainability.

Macroeconomic Effects and Policy Challenges of Population Aging

This paper simulates the macroeconomic effects of population aging in a dynamic overlapping generations model of a small open economy. The model is calibrated to data for the Czech Republic, where population aging is proceeding at a pace comparable to that in other advanced countries in Europe. Simulations show that population aging is likely to slow economic growth and improvements in living standards. Although reforms to raise labor force participation and productivity growth can mitigate these adverse effects, they are unlikely to eliminate the need for fiscal reforms. The budget will come under pressure from rising age-related expenditures, and consolidation will be needed to preserve debt sustainability.

Public Finances in the Euro Area: Growth Shocks and Structural Factors

Helvi Kinnunen and Pasi Kuoppamaki examine the sustainability of public finances in Finland and the four main euro area countries. The analytical framework is based on intertemporal budget dynamics. The paper shows that, in spite of the increase in age-related expenditure, the policies implicit in the 1997 primary budget balances would lead to a non-increasing debt ratio in almost all countries. The paper evaluates the implications of different growth and interest rate assumptions. The sensitivity calculations indicate that the response of the public debt and deficit ratios is stronger with respect to interest rate changes than it is to growth changes. However, the calculations show that a severe recession would lead to prolonged fiscal imbalances in some countries. Kinnunen and Kuoppamaki also estimate the tax-gaps, i.e. the change in the tax to GPD ratio, required to ensure debt stability or to fulfil the Stability and Growth Pact requirement of a balanced budget. The latter criterion is more demanding than the former. The authors note that comparisons of tax-gaps between countries should be considered very cautiously since they do not provide indications about the constraints that policymakers actually face. They also note that tax competition may significantly affect fiscal policy, in particular in highly taxed countries.

Generational Accounts for The Netherlands: An Update

This paper extends the standard generational accounting methodologyby incorporating prospective changes in the economic environment,assigning the benefits of government purchases to generations,distinguishing between public consumption and public investment,and transforming the generational accounts into government budgets.It applies the methodology to the Netherlands. An expected increasein labor-force participation almost offsets the adverse effectof aging on the sustainability of the Dutch public finances.Since the rise in labor-force participation occurs before thebulk of the aging, the government will have to run sizable fiscalsurpluses in the next decades in order to create the budgetaryroom for higher age-related government expenditures in laterdecades.

Assessing the impact of demographic ageing on the welfare state in Italy

The Italian demographic evolution shows a significant ageing of the population due to declining fertility levels and increasing life expectancy. In comparison with other European Union countries, Italy has the lowest total fertility rate and very low levels of higher education and young-age em­ ployment rates. The consequences of these sociodemographic trends will be a very high proportion of dependent population relative to the population in the labour force. These trends are supposed to influence the future evolution of the age-related expenditures: pensions, health care and education. In this paper we try to forecast the share of social expenditure on GDP using a dynamic simulation model which takes into account both macroeconomic and sociodemographic interrelationships. A multi state demographic projection model is linked to an overlapping generation model describing the macroeconomic equilibrium. The results show that around 2030 there will be a peak in the social expenditure ratio causing the need for further reforms in the social security and health care system.