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Fiscal sustainability and demographics – Should we save or work more?

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  • Andersen, Torben M.
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    Abstract

    Approaching 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 Info

    Article provided by Elsevier in its journal Journal of Macroeconomics.

    Volume (Year): 34 (2012)
    Issue (Month): 2 ()
    Pages: 264-280

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    Handle: RePEc:eee:jmacro:v:34:y:2012:i:2:p:264-280

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    Web page: http://www.elsevier.com/locate/inca/622617

    Related research

    Keywords: Tax smoothing; Fiscal sustainability; Longevity; Fertility;

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    References

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    12. Torben M. Andersen & Lars Haagen Pedersen, 2006. "Financial Restraints in a Mature Welfare State--The Case of Denmark," Oxford Review of Economic Policy, Oxford University Press, vol. 22(3), pages 313-329, Autumn.
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    Cited by:
    1. Andras Simonovits, 2013. "A family of simple paternalistic transfer models," IEHAS Discussion Papers 1324, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    2. Simonovits, András, 2013. "Egyszerű paternalista transzfermodellek családja
      [A family of simple paternalistic transfer models]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 402-430.
    3. Torben Andersen, 2014. "Intergenerational redistribution and risk sharing with changing longevity," Journal of Economics, Springer, vol. 111(1), pages 1-27, February.
    4. Andras Simonovits, 2012. "Optimal linear redistributive tax and pension systems with flexible labor supply," IEHAS Discussion Papers 1233, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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