Age-related Spending Research Articles

The Economic Growth Factor in the Concept of Sustainable Reforms of National Pension Systems in the Eastern Europe Region

The international systems of indicators for the comparative assessment of the sustainability component do not always cover the Eastern European region, which can be considered an obstacle to the global understanding of the problems and possible solutions in the reform of national pension systems. At the same time, in the conditions when pension systems face the strong influence of several factors, and the operation and administration of national pension systems represent a challenge for most countries in the Eastern European region, it is important to determine the system of indicators, which would ensure a sustainable reform thereof. The article presents views on the systematization of the factors that influence the sustainable reforms of the national pension systems and the results of the study on the relationship between the factor of economic growth and the aging of the population, carried out for 10 countries in the Eastern European region and a chronological series 2010-2021. The data obtained on the correlation coefficient between economic growth and the rate of the elderly population confi rm recent research by other authors, carried out for 15 European countries during the same period, according to which the rate of the elderly population has a medium-level impact on economic growth for at least half of analyzed countries and for another third of countries there is no relationship between the economy and the 65+ population. The strength of the relationship between the economy and the elderly population in the period 2010-2021 was very weak in all countries in the Eastern European region. Moreover, in the Czech Republic and at the level of the region, this dependence could be considered as non-existent, the values of the correlation coefficients being close to 0. Only for Slovakia the correlation coefficient shows a slightly stronger but weak and opposite dependence, as for Belarus, Moldova and Russia. The author’s analysis does not validate the increasing burden of population aging in Eastern European economies, which means the lack of need to reorient public social spending towards higher age-related spending in the analyzed period. The study confirms the contradictory nature of the factor of raising the retirement age, thus, it could be removed from the list of beneficial factors of sustainable pension reform, and the cause-and-effect relationship between economic growth and the rate of the elderly population could be neglected. This study complements the data on the differences between Eastern European countries and Western and Northern European countries and would have an impact on policies to reform national pension systems, especially in the context of the political paradigm that supports the concept of a negative impact of aging on economic growth.

Fiscal financing components in a simple model of policy interaction

Post-Great Recession many advanced nations have experienced an unprecedented rise in debt-to-GDP ratios. Among other factors, increasing age-related spending can add to fiscal stress with a high peacetime debt-GDP ratio. Therefore, it is crucial to understand the factors that can affect the debt dynamics. Previous literature highlights the components affecting the debt-GDP ratio as nominal interest rate, inflation, growth rate, and primary deficit/surplus. However, the contribution of these financing components was calculated without any reference to policy regimes. This paper calculates the financing components and their distribution under two regimes: “active” fiscal and “passive” monetary policy (“F”) and “active” monetary and “passive” fiscal policy (“M”) using US data between 1942 and 2017. The results show that inflation, growth rate, and primary deficit have played essential roles in affecting the debt-GDP dynamics under regime F.

Επισκόπηση των Δαπανών Μακροχρόνιας Φροντίδας στην Ελλάδα

Age-related spending has spawned great interest in Academia and policy-makers alike as the demographic effect leaves no space for additional fiscal burden. The European Commission, under the Aging Working Group, has been monitoring age-related spending for a few decades and provides insight and results of each Member State and the European and Euro-area averages. The five components of age-related spending, name- ly Pensions, Health, Long-term care, Unemployment and Education, are not of the same fiscal weight. Pensions and Health have already been in the limelight for quite a long time now, however the long-term care is slowly but surely becoming a point of interest because of Aging. People live longer and better and this means – among other things – they will need additional help to cope with disease which was previously terminal, but can now be treated. Respectively, for age-related incidents which tend to become more acute as people reach the expected life limit or – hopefully – exceed it. This paper aims to analyze the data for long-term care as reported to the Aging Working Group in the last four projection rounds, compare and contrast them and provide reasons for the important inconsistencies spotted in the former. As long-term care in Greece has shifted partly from the Local government to the General government and vice versa, proper data reporting and collection has not yet been up to international stan- dards.

Staatsfinanzen in der Corona-Krise: G\xfcnstige Bedingungen sichern Handlungsf\xe4higkeit

ZusammenfassungNoch zur Jahreswende 2019/2020 prognostizierten die an der Gemeinschaftsdiagnose beteiligten Wirtschaftsforschungsinstitute für 2020 staatliche Budgetüberschüsse von 21 Mrd. bis 31 Mrd. Euro. Sie gingen von einer Fortsetzung des Aufschwungs aus und erwarteten eine weitere Besserung der staatlichen Finanzlage. Die Staatsfinanzen waren fast ein Jahrzehnt von steigenden Budgetüberschüssen geprägt. Die Corona-Krise verschlechtert die Finanzlage schlagartig; sie wird 2020 zu einem historisch hohen Defizit und einem rasanten Anstieg der Staatsschuldenquote führen. Dank der komfortablen Finanzlage zu Beginn der Corona-Krise und der flexibel ausgestalteten Schuldenbremse verfügt der Staat aber über ausreichende fiskalische Spielräume, um Rettungsschirme und Konjunkturpakete von historischem Ausmaß zu finanzieren.

Does Population Aging Contribute to Increased Fiscal Spending

Purpose – With rapid population aging in Korea, changes in the population structure will result in a rise in the fiscal burden. This paper investigates the effects of population aging on fiscal spending based on Korea’s province data and country panel data from the OECD. Research design, data, and methodology - We use province-level fiscal data from Local Finance Integrated Open System and the Korean Statistical Information Service and also collect country panel data from the OECD. To investigate the relationship between population aging and fiscal expenditures, our analysis uses the fixed effects model. Results - The empirical analysis based on Korean local finance and country panel data show that population aging has a positive impact on social welfare expenditures and it also has a positive impact on spending related to children and the elderly, implying that population aging may lead to an increase in fiscal spending via an increase in social welfare expenditures and spending related to children and the elderly. Conclusion - These empirical results suggest that countries like Korea that expect to experience rapid population aging need to pay more attention to prepare for the expected increase in age-related spending in the near future.

FACING DEMOGRAPHIC CHALLENGES: PENSION CUTS OR TAX HIKES?

A challenge that faces many advanced economies is how to finance age-related spending programs as the population ages. In this paper, we investigate two policy options–pension cuts and tax hikes–to mitigate fiscal pressure arising in the special context of Australia, whose population is ageing fast while growing substantially in size due to immigration. Using a computable overlapping generations model, we find that while both policy reforms can achieve a similar fiscal goal, they lead to different distributional and welfare effects across income groups over time. Future generations prefer pension cuts, whereas current generations prefer tax hikes to finance government spending commitments. Moreover, within the tax hike option, taxing income or consumption results in opposing macroeconomic and welfare effects. Indeed, our opposing intra- and inter-temporal welfare outcomes highlight some political complexity when devising a more sustainable tax-transfer system.

The Fiscal Consequences of Shrinking and Ageing Populations

Declining fertility and increasing longevity will lead to a slower-growing, older world population. The share of the world population older than age 65 could increase from 12% today to 38% by 2100. In most countries, population is projected to peak sometime this century and decline thereafter. These developments would place public finances of countries under pressure. Spending on age-related programs (pensions and health) would rise by 8.3 percentage points of GDP and 11.5 percentage points of GDP in more and less developed countries, respectively, between now and 2100. Projecting demographics is a risky business, and policymakers should be prepared to deal with an even faster transition to declining populations. Given the magnitude of the needed policy response, a multi-pronged approach will be required, including entitlement reform, policies that affect demographics and labor markets, better tax systems, and more efficient public expenditure. In many countries it will be impossible to fully offset the impact of demographics on age-related spending, thus necessitating broader public sector reforms to improve the public finances.

Fiscal Sustainability in Japan

Japanese government debt is at unprecedented levels with a gross debt to GDP ratio of over 230% and a net debt to GDP ratio of 150%. There are three big challenges to fiscal sustainability: the huge government bonds outstanding; continued budget deficits; and the growing age-related spending. The debt is sustainable as long as the market as a whole believes it is. The path to fiscal consolidation requires increasing the tax rate, reducing spending, broadening the tax base and growing the economy out of trouble. The longer the delay before moving to a more sustainable consolidation path, the larger the risks and closer Japan moves towards a financial crisis. The policy goal is to keep government debt sustainable, not to repay it all. Just as Japan has done since the burst of the asset bubble in the early 1990s there is every likelihood that the Japanese economy will muddle through.

GROWTH-MAXIMIZING PUBLIC DEBT UNDER CHANGING DEMOGRAPHICS

This paper develops an overlapping-generations model to study the growth-maximizing level of public debt under conditions of demograhic change. It is shown that the optimal debt level depends on a positive marginal productivity of public capital. In general, it also depends on the demographic parameters, but not if the government is not allowed to borrow to cover revenue shortfalls for current age-related spending. In that context, balanced budget rules are not an approriate form of fiscal rule. The implication is that a government facing demograhic change or demands for more welfare spending will have to adjust its fiscal plans to accommodate those changes, most likely downward, if growth is to be preserved. An advantage of this model is that it allows us to determine in advance the way in which fiscal policies need to adjust as demographic parameters change.

Defusing the Debt Time Bomb: Challenges and Solutions

The government’s finances are currently on an unsustainable trajectory. Whilst current levels of government debt are below the levels seen in previous periods in history, accumulating such large levels of debt during a long period of peacetime is more or less unknown. Government debt figures do not include commitments to future spending either: governments do not account in the same prudent way that companies are required to account. An ageing population means that on unchanged policies the cost of providing age-related spending such as healthcare, pensions and social care will rise substantially over the next five decades, sending overall debt on an upward trajectory. According to the government’s own Office for Budget Responsibility (OBR) a permanent fiscal adjustment (tax increases and/or spending cuts) of 1.3 per cent of national income will be necessary from 2018/19 in order to ensure that the debt-to-GDP ratio falls to 20 per cent by 2063/64. However, the OBR figures make heroic assumptions about healthcare productivity and also assume that there will be a fiscal adjustment of 5.2 per cent of national income before 2018/19. In other words, spending needs to be cut by around 6.5 per cent of national income from now and for the foreseeable future to hit a government debt target of 20 per cent of national income by 2063/64. Such a measure will not create room to reverse recent tax increases. If more realistic assumptions about healthcare productivity, immigration and spending priorities are made, spending would need to be cut by 9.6 per cent of national income now and for the foreseeable future to hit a debt target of 20 per cent of national income in 50 years’ time. This is equivalent to about one quarter of all government spending or one half of all social protection spending. Other approaches to the analysis of the public finances reach similar conclusions. During its term of office, the government has taken action that has affected the long-term fiscal position detrimentally. Abolishing contracting-out of the state pension system, the implementation of the ‘triple lock’ on pension increases and ring-fencing health spending have been especially unhelpful. The government’s long-term fiscal position would be improved by following a combination of the following policies: – Restricting state benefits in various ways, for example only linking the state pension to price increases, raising significantly the state pension age and introducing user-charges in healthcare. – Various forms of deregulation aimed at raising productivity and labour market participation. – Substantial pre-funding of pensions and healthcare.

The Future of Public Debt: Prospects and Implications

Since the start of the financial crisis, industrial country public debt levels have increased dramatically. And they are set to continue rising for the foreseeable future. A number of countries face the prospect of large and rising future costs related to the ageing of their populations. In this paper, we examine what current fiscal policy and expected future agerelated spending imply for the path of debt/GDP ratios over the next several decades. Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is unsustainable. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability.

Establishment of an Administered Account for Interim Holdings of Voluntary Contributions for Fund Activities and Establishment of a Framework Administered Account for Selected Fund Activities - Subaccount for the Administration of Selected Smaller-Scale Capacity Building Activities

This paper identifies policy tools to support fiscal consolidation in the years ahead. Its starting point is the analysis in the recent Board papers describing strategies for fiscal consolidation (IMF, 2010a, 2010b), which showed that on current trends, general government debt in advanced countries would rise 36 percentage points of GDP during 2007–14, and that age-related spending (health and pension) would rise rapidly later, further adding to fiscal pressures. Trends are more favorable in emerging economies, but adjustments are needed there too.

Policy Challenges of Population Aging in Ireland

The projected rise in age-related government spending as a share of GDP in Ireland over the next forty years is among the highest in the euro area. In the absence of reforms, public debt will increase to unsustainable levels. This paper uses the IMF's Global Fiscal Model to compare the macroeconomic effects of different fiscal strategies to accommodate the rise in age-related spending. The simulations suggest that adopting a package of measures, including an increase in the retirement age, broadening the tax base, and raising indirect taxes, would be a more growth-friendly strategy than relying exclusively on raising the social security contribution rate.

Aging: Some Pleasant Fiscal Arithmetic

Projections of age-related public expenditure growth have raised widespread concerns about fiscal sustainability. This paper examines how total expenditure would develop under four policy rules on public expenditure growth. Some simple arithmetic of expenditure, GDP, and population is reviewed and applied in simulations for 19 OECD countries over 2000–50. A general and a specific conclusion arise from the results. Generally, long-term expenditure projections could benefit from revisiting common assumptions on non-age-related expenditure growth. Specifically, realistic gradual adjustment in non-age-related expenditures could go a long way towards maintaining fiscal sustainability under age-related spending pressures.

Guarding Against Fiscal Risks in Hong Kong Sar

Hong Kong SAR's government faces the dual challenges of volatile revenue and medium term spending pressures arising from a rapidly aging population. Age-related spending pressures raise long-run sustainability concerns, while revenue volatility creates risks to service provision, possibly entailing sudden tax changes, or even requiring new borrowing. After describing the risks associated with aging, the paper uses value at risk techniques to measure the value of the unanticipated risks posed by volatile revenue. The paper also describes the self-insurance value of Hong Kong SAR's traditionally high fiscal savings (reserves), and the impact alternate policy choices could have on revenue volatility.

Social expenditure in the 1990s: data and determinants

English This article examines patterns of social expenditure change in 21 OECD countries in the period 1990-2001 and seeks to uncover their determinants. Key trends identified include an overall stability of spending patterns, a marginal shift from transfers to inkind service provision and emergent signs of increased control of age-related spending. Important conclusions derived from a multivariate analysis include the major impact of economic growth, a marked programme maturation effect in fields other than age-related spending and confirmation of the central relevance of policy reform initiatives in the age-spending arena. Although in this period, unlike earlier ones, there is no sign that party ideology influences expenditure patterns, the findings concerning reform initiatives underscore the continuing impact of policy choices on policy outcomes.

Aging: Some Pleasant Fiscal Arithmetic

Projections of age-related public expenditure growth have raised widespread concerns about fiscal sustainability. This paper examines how total expenditure would develop under four policy rules on public expenditure growth. Some simple arithmetic of expenditure, GDP, and population is reviewed and applied in simulations for 19 member countries of the Organization for Economic Cooperation and Development (OECD) over 2000-50. A general and a specific conclusion arise from the results in this paper: Generally, long-term expenditure projections could benefit from revisiting common assumptions on non-agerelated expenditure growth. Specifically, under realistic assumptions, the belt-tightening required to maintain fiscal sustainability under age-related spending pressures could be less painful than commonly thought.

Aging: Some Pleasant Fiscal Arithmetic

Projections of age-related public expenditure growth have raised widespread concerns about fiscal sustainability. This paper examines how total expenditure would develop under four policy rules on public expenditure growth. Some simple arithmetic of expenditure, GDP, and population is reviewed and applied in simulations for 19 member countries of the Organization for Economic Cooperation and Development (OECD) over 2000-50. A general and a specific conclusion arise from the results in this paper: Generally, long-term expenditure projections could benefit from revisiting common assumptions on non-age-related expenditure growth. Specifically, under realistic assumptions, the belt-tightening required to maintain fiscal sustainability under age-related spending pressures could be less painful than commonly thought.

Fiscal Challenges Posed by Aging Populations

One of the key challenges facing governments as a result of an aging population will be how to balance the public finances in the future in the light of potentially rapidly rising age-related spending. This article presents the underlying causes of population aging and how this might affect future pension and health spending in European Union countries. The article then presents a number of policy options available to policymakers to deal with this challenge, arguing that none of them is without its problems. Nonetheless, European governments are making gradual progress, for example by reforming public pension systems.

Fiscal Implication of Ageing: Projections of Age-related Spending

Fiscal Implication of Ageing: Projections of Age-related Spending