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Demographic Change and Public Sector Budgets in a Federal System

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  • Michael Hofmann
  • Gerhard Kempkes
  • Helmut Seitz
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    Abstract

    This paper examines the effects of demographic change on public finances in a federal system. We develop a simple methodical procedure to measure the effect of demographic changes on public revenues and expenditures. We apply our method to the local, state and federal government sector as well as on the social security system in Germany. Our results suggest that demographic change will lead to significant vertical fiscal imbalances between the different layers of government. In addition we show, that subnational governments can generate a demographic dividend whereas the social security system and the federal government have to carry an additional burden due to ageing.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-05/cesifo1_wp2317.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2317.

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    Date of creation: 2008
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    Handle: RePEc:ces:ceswps:_2317

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    Related research

    Keywords: fiscal federalism; demographic change; sustainability of public finances;

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    References

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    1. Ronald D. Lee & Ryan D. Edwards, 2001. "The fiscal impact of population change," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 46.
    2. Disney, Richard, 2007. "Population ageing and the size of the welfare state: Is there a puzzle to explain?," European Journal of Political Economy, Elsevier, vol. 23(2), pages 542-553, June.
    3. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
    4. Oded_Galor, 2004. "The Demographic Transition and the Emergence of Sustained Economic Growth," Working Papers 2004-13, Brown University, Department of Economics.
    5. Brunner, Eric & Balsdon, Ed, 2004. "Intergenerational conflict and the political economy of school spending," Journal of Urban Economics, Elsevier, vol. 56(2), pages 369-388, September.
    6. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts - A Meaningful Alternative to Deficit Accounting," NBER Working Papers 3589, National Bureau of Economic Research, Inc.
    7. Tim Callen & Warwick J. McKibbin & Nicoletta Batini, 2006. "The Global Impact of Demographic Change," IMF Working Papers 06/9, International Monetary Fund.
    8. Echevarria, Cruz A, 1995. "On Age Distribution of Population, Government Expenditure and Fiscal Federalism," Journal of Population Economics, Springer, vol. 8(3), pages 301-13, August.
    9. Jie Zhang & Junsen Zhang, 2005. "The Effect of Life Expectancy on Fertility, Saving, Schooling and Economic Growth: Theory and Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 45-66, 03.
    10. Borsch-Supan, Axel, 2000. "A Model under Siege: A Case Study of the German Retirement Insurance System," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(461), pages F24-45, February.
    11. Sanz, Ismael & Velazquez, Francisco J., 2007. "The role of ageing in the growth of government and social welfare spending in the OECD," European Journal of Political Economy, Elsevier, vol. 23(4), pages 917-931, December.
    12. Robin Boadway & Jean-Francois Tremblay, 2006. "A Theory of Vertical Fiscal Imbalance," Working Papers, Queen's University, Department of Economics 1072, Queen's University, Department of Economics.
    13. Helmut Seitz & Gerhard Kempkes, 2007. "Fiscal Federalism and Demography," Public Finance Review, , vol. 35(3), pages 385-413, May.
    14. George Hondroyiannis & Evangelia Papapetrou, 2000. "Do Demographic Changes Affect Fiscal Developments?," Public Finance Review, , vol. 28(5), pages 468-488, September.
    15. Gemma Abio Roig, 2006. "Population Ageing and the Sustainability of the Spanish National Health System: Some Financial Policy Alternatives," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 31(4), pages 557-580, October.
    16. Harris, Amy Rehder & Evans, William N. & Schwab, Robert M., 2001. "Education spending in an aging America," Journal of Public Economics, Elsevier, vol. 81(3), pages 449-472, September.
    17. Martin Werding & Anita Kaltschütz, 2005. "Modellrechnungen zur langfristigen Tragfähigkeit der öffentlichen Finanzen," ifo Beiträge zur Wirtschaftsforschung, Ifo Institute for Economic Research at the University of Munich, number 17, July.
    18. Jonathan Gruber & David Wise, 2001. "An International Perspective on Policies for an Aging Society," NBER Working Papers 8103, National Bureau of Economic Research, Inc.
    19. Jane Sneddon Little & Robert K. Triest, 2001. "Seismic shifts: the economic impact of demographic change: an overview," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 46.
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    Cited by:
    1. Eckhard Wurzel, 2009. "Finanzpolitik: Stärker auf Ergebnisse hin orientieren," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 62(18), pages 38-42, 09.
    2. Olivier Pierrard & Henri R. Sneessens & David de la Croix, 2010. "Ageing, Pensions and The Labour Market," 2010 Meeting Papers 779, Society for Economic Dynamics.

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