Fiscal sustainability and demographics – Should we save or work more?
AbstractApproaching demographic shifts are raising concerns about fiscal sustainability in most OECD countries. A widespread view based on the tax-smoothing idea is that a prior consolidation of public finances is required to cope with the predicted trend deterioration in the primary budget balance. However, the smoothing argument cannot unconditionally be applied to the demographic problem. It is important to distinguish between increases in the dependency ratio driven by changes in fertility and longevity. For the former the smoothing argument may be appropriate, but not for the latter. In the case of longevity, a trade-off between consolidation and increasing retirement ages becomes relevant, and there are strong arguments why the latter should be pursued by e.g. linking statutory retirement ages to longevity. Both positive aspects in assessing the order of magnitude of sustainability problems and normative aspects of formulating policy strategies are addressed.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 34 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/inca/622617
Tax smoothing; Fiscal sustainability; Longevity; Fertility;
Find related papers by JEL classification:
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
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