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Public Finance Implications of Population Ageing

  • Phillip King
  • Harriet Jackson
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    The paper simulates long-run debt paths for the federal and each provincial-territorial government using a model that captures the effects of population ageing on economic growth and government revenues and expenditures. The model incorporates alternative assumptions about the rate of growth of health spending per capita, the rate of growth in federal transfers to provinces and territories and the allocation of federal and provincial budget surpluses between debt repayment, tax cuts and expenditure increases. A variety of spending scenarios and macroeconomic regimes assess the degree to which governments can engage in discretionary spending further to that contained in the basecase scenario. We find that the majority of jurisdictions could significantly reduce or eliminate their net debt within the next twenty years even in the face of ageing-related cost pressures. The main conclusion of the paper is that population ageing alone should not cause major problems for public finances. For instance, under a scenario where real health spending per capita within each age cohort is allowed to grow by one per cent per year (the average observed over the late 1970s and early 1990s) and budget surpluses are allocated in equal share between debt repayment, new spending and tax reduction, the debt-to-GDP ratio falls in most provinces and territories. However, macroeconomic regimes which first place a greater emphasis on debt reduction are a necessary part of the fiscal mix. Cette étude simule l'évolution à long terme de la dette du gouvernement fédéral et de chaque province et territoire à l'aide d'un modèle qui tient compte des effets du vieillissement de la population sur la croissance économique, de même que sur les recettes et les dépenses de l'État. Le modèle intègre à tour de rôle des hypothèses sur le taux de croissance des dépenses de santé par habitant, le taux de croissance des transferts fédéraux aux provinces et territoires et la répartition des excédents budgétaires fédéraux et provinciaux entre le remboursement de la dette, les réductions d'impôt et l'augmentation des dépenses. Divers scénarios de dépenses et régimes macroéconomiques évaluent dans quelle mesure les gouvernements peuvent engager des dépenses discrétionnaires au-delà de ce que prévoit le scénario de base. Les auteurs constatent que la plupart des administrations pourraient réduire nettement ou éliminer leur dette d'ici 20 ans en dépit des tensions de coût liées au vieillissement de la population. Selon la principale conclusion de l'étude, le vieillissement de la population n'engendrerait pas, à lui seul, de graves problèmes pour les finances publiques. Par exemple, en supposant que les dépenses de santé réelles par habitant à l'intérieur de chaque cohorte d'âge augmentent de 1 % par année (soit la moyenne observée à la fin des années 70 et au début des années 90) et que les excédents budgétaires sont répartis également entre le remboursement de la dette, les nouvelles dépenses et les réductions d'impôt, le ratio dette-PIB diminue dans la plupart des provinces et territoires. Toutefois, le cadre budgétaire devrait comprendre nécessairement des régimes macroéconomiques qui insistent sur les réductions de la dette.

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    Paper provided by Department of Finance Canada in its series Working Papers-Department of Finance Canada with number 2000-08.

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    Handle: RePEc:fca:wpfnca:2000-08
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