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Demographic Change and Fiscal Sustainability in Asia

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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:

    1. Prilepskiy, Ilya (Прилепский, Илья), 2015. "The impact of fiscal policy on the current account balance and the real exchange rate
      [Влияние Бюджетной Политики На Сальдо Текущего Счета И Реальный Курс Рубля]
      ," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 7-23.

    More about this item

    Keywords

    Fiscal projection; tax; public spending; fiscal balance; population aging; Asia;

    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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