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Population Aging and Its Economic Costs: A Survey of the Issues and Evidence

  • Frank T. Denton
  • Byron G. Spencer

The aging of the population is expected to result in substantial increases in the costs of maintaining health care and pension programs, and that is a source of widespread concern. However, a proper assessment requires that attention be given to all categories of government expenditure, including education and others associated with younger age groups, and not just those associated with the older population. It requires also that privately provided goods and services be considered, since their costs must be charged against the same national income as publicly provided ones. Beyond that, it is important to recognize that population change affects not only the demand side of the economy, but also the supply side -- the economy's productive capacity. An important conclusion is that while other influences will no doubt play a role, demographic effects by themselves are likely to cause government expenditure (all categories, all levels of government combined) to increase by no more than the rate of growth of the population, and by less than the rate of growth of the gross domestic product. Taking public and private costs together, and assigning appropriate weights to different age groups, the overall "dependency ratio" can be expected to remain at its current low level for another decade and a half or two decades, and then to rise as the baby boom generation retires in large numbers. However, the projected future ratio never reaches the levels of the 1950s and 1960s. Although the overall "burden" of population aging is manageable, major adjustments will be required in the coming decades, especially in the area of federal/provincial cost sharing. For the most part, though, the effects of population aging are predictable, slow, and some time off.

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File URL: http://socserv.mcmaster.ca/qsep/p/qsep340.PDF
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Paper provided by McMaster University in its series Quantitative Studies in Economics and Population Research Reports with number 340.

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Length: 37 pages
Date of creation: Mar 1999
Date of revision:
Handle: RePEc:mcm:qseprr:340
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  1. F.T. Denton & B.G. Spencer, 1996. "Population Aging and the Maintenance of Social Support Systems," Quantitative Studies in Economics and Population Research Reports 320, McMaster University.
  2. John Burbidge & Deborah Fretz & Michael R. Veall, 1998. "Canadian and American Saving Rates and the Role of RRSPs," Canadian Public Policy, University of Toronto Press, vol. 24(2), pages 259-263, June.
  3. Frank T. Denton & Byron G. Spencer, 1998. "Economic Costs of Population Aging," Quantitative Studies in Economics and Population Research Reports 339, McMaster University.
  4. repec:fth:harver:1490 is not listed on IDEAS
  5. Frank T. Denton & Byron G. Spencer, 1997. "Demographic Trends, Labour Force Participation, and Long-term Growth," Independence and Economic Security of the Older Population Research Papers 23, McMaster University.
  6. David M. Cutler & James M. Poterba & Louise M. Sheiner & Lawrence H. Summers, 1990. "An Aging Society: Opportunity or Challenge?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 1-74.
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  19. Frank T. Denton & Christine H. Feaver & Byron G. Spencer, 1997. "Immigration, Labour Force, and the Age Structure of the Population," Quantitative Studies in Economics and Population Research Reports 335, McMaster University.
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  24. Robert W. Hartman & Thomas J. Espenshade, 1994. "Can immigration slow U.S. population aging?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 13(4), pages 759-768.
  25. John Burbidge, 1996. "Public Pensions in Canada," Independence and Economic Security of the Older Population Research Papers 1, McMaster University.
  26. Michael D. Hurd, 1993. "The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers," NBER Working Papers 4462, National Bureau of Economic Research, Inc.
  27. Peter Diamond, 1996. "Public Provision of Pensions: The Doug Purvis Memorial Lecture," Canadian Public Policy, University of Toronto Press, vol. 22(1), pages 1-6, March.
  28. 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.
  29. Gauthier, Hervé, 1991. "L’incidence du vieillissement démographique sur les dépenses sociales," L'Actualité Economique, Société Canadienne de Science Economique, vol. 67(1), pages 103-118, mars.
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