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Demographic Change and Fiscal Sustainability in Asia

Author

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  • Sang-Hyop Lee

    (East-West Center and University of Hawaii at Manoa, Honolulu, USA)

  • Jungsuk Kim

    (Institute of International and Area Studies, Sogang University, Korea)

  • Donghyun Park

    (Asian Development Bank, Manila, Philippines)

Abstract

Changes in the population age structure can have a significant effect on fiscal sustainability since they can affect both government revenues and expenditures. For example, population aging will increase expenditures on the elderly while reducing potential growth and hence revenues. In this paper, we project government revenue, expenditure, and fiscal balance in developing Asia up to 2050. Using a simple stylized model and the National Transfer Accounts (NTA) data set, we simulate the effect of both demographic changes and economic growth. Rapidly aging countries like Korea, Japan, and Taipei, China, are likely to suffer a tangible deterioration of fiscal sustainability under their current tax and expenditure system. On the other hand, rapid economic growth can improve fiscal health in poorer countries with relatively young populations and still-growing working-age populations. Overall, our simulation results indicate that Asia’s population aging will adversely affect its fiscal sustainability, pointing to a need for Asian countries to further examine the impact of demographic shifts on their fiscal health.

Suggested Citation

  • Sang-Hyop Lee & Jungsuk Kim & Donghyun Park, 2016. "Demographic Change and Fiscal Sustainability in Asia," Economic Growth Centre Working Paper Series 1602, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
  • Handle: RePEc:nan:wpaper:1602
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    References listed on IDEAS

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    Cited by:

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    2. Rimon Saha & Udaya S. Mishra, 2022. "Development goals, population demography and state expenditure on human priority sectors: a study of Indian major states," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 69(1), pages 21-47, March.
    3. Jianguo Zhao & Lei Zhang, 2023. "Fiscal Expenditure Efficiency Measurement and Its Convergence Analysis on Aging Undertakings in China: Based on a Global Super-Efficiency Slacks-Based Measure Model," Sustainability, MDPI, vol. 15(3), pages 1-21, January.
    4. Patrik Rovný & Serhiy Moroz & Jozef Palkovič & Elena Horská, 2021. "Impact of Demographic Structure on Economic Development of Ukrainian Coastal Regions," Sustainability, MDPI, vol. 13(4), pages 1-19, February.
    5. Taehwan Rhee & Jacob Wood & Jungsuk Kim, 2022. "Digital Transformation as a Demographic and Economic Integrated Policy for Southeast Asian Developing Countries," Sustainability, MDPI, vol. 14(5), pages 1-19, March.
    6. Kim, Hyun Kyung & Lee, Sang-Hyop, 2021. "The effects of population aging on South Korea’s economy: The National Transfer Accounts approach," The Journal of the Economics of Ageing, Elsevier, vol. 20(C).

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    More about this item

    Keywords

    Fiscal projection; tax; public spending; fiscal balance; population aging; Asia;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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