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The Effects of the Ageing European Population on Economic Growth and Budgets: Implications for Immigration and Other Policies

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  • Martin S. Feldstein

Abstract

The ageing of the population presents a major fiscal challenge for the countries of Europe. The combination of increased longevity and a reduced birth rate will directly reduce the growth rates of the European economies by slowing the growth of the capital stock and by weakening the productivity of the labor force. This slower growth of GDP means a smaller tax base and less tax revenue. In addition, the current tax-financed systems of social pensions and health care will require substantial increases in the already high tax rates. The analysis in this paper shows that the common prescription of increased immigration would do little to reduce the future fiscal burden. The increased revenue from a large rise in immigration would finance only a small part of the coming rise in the cost of pension and health benefits. The only alternative to significantly higher tax rates or substantially lower retirement income is to shift from a pure tax-financed system to a mixed system that supplements the tax financed benefits with benefits based on increased saving financial investment.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12736.

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Date of creation: Dec 2006
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Handle: RePEc:nbr:nberwo:12736

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Cited by:
  1. Hisahiro Naito, 2013. "Pareto-improving Immigration and Its Effect on Capital Accumulation in the Presence of Social Security," Tsukuba Economics Working Papers, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba 2013-004, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba.
  2. Edith Sand & Assaf Razin, 2007. "The Political-Economy Positive Role of the Social Security System in Sustaining Immigration (But Not Vice Versa)," NBER Working Papers 13598, National Bureau of Economic Research, Inc.
  3. Edith Sand & Assaf Razin, 2007. "The Role of Immigration in Sustaining the Social Security System: A Political Economy Approach," CESifo Working Paper Series 1979, CESifo Group Munich.
  4. Edith Sand & Assaf Razin, 2006. "Immigration and the Survival of Social Security: A Political Economy Model," NBER Working Papers 12800, National Bureau of Economic Research, Inc.
  5. Sari Pekkala Kerr & William R. Kerr, 2011. "Economic Impacts of Immigration: A Survey," Finnish Economic Papers, Finnish Economic Association, Finnish Economic Association, vol. 24(1), pages 1-32, Spring.

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