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Assessing Components of Uncertainty in Demographic Forecasts with an Application to Fiscal Sustainability

Author

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  • Alho, Juha
  • Lassila, Jukka

Abstract

When the future evolution of demographic processes is described in a stochastic setting, the challenge is to communicate the meaning of forecast uncertainty in an understandable way, to decision makers and public at large. For the purpose of risk communication, a formal setting is developed, in which the roles of the demographic processes on point forecasts and predictive distributions can be elucidated. The communication problem becomes central in fiscal decision making, when eventual forecast errors have differential implications on the value of the policy options being considered. Tax rate that is required to maintain financial sustainability, until a given target year, is used for illustration.

Suggested Citation

  • Alho, Juha & Lassila, Jukka, 2022. "Assessing Components of Uncertainty in Demographic Forecasts with an Application to Fiscal Sustainability," ETLA Working Papers 92, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:wpaper:92
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    References listed on IDEAS

    as
    1. Ronald Lee & Andrew Mason (ed.), 2011. "Population Aging and the Generational Economy," Books, Edward Elgar Publishing, number 13816.
    2. Andrew Mason & Ronald Lee, 2011. "Population aging and the generational economy: key findings," Chapters, in: Ronald Lee & Andrew Mason (ed.), Population Aging and the Generational Economy, chapter 1, Edward Elgar Publishing.
    3. Jukka Lassila & Tarmo Valkonen, 2018. "Longevity, Working Lives, And Public Finances," Contemporary Economic Policy, Western Economic Association International, vol. 36(3), pages 467-482, July.
    4. Alho, Juha M., 2014. "Forecasting demographic forecasts," International Journal of Forecasting, Elsevier, vol. 30(4), pages 1128-1135.
    5. Risto Vaittinen & Reijo Vanne, 2011. "National Transfer Accounts for Finland," Chapters, in: Ronald Lee & Andrew Mason (ed.), Population Aging and the Generational Economy, chapter 14, Edward Elgar Publishing.
    6. Lassila, Jukka & Valkonen, Tarmo & Alho, Juha M., 2014. "Demographic forecasts and fiscal policy rules," International Journal of Forecasting, Elsevier, vol. 30(4), pages 1098-1109.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Aging; Demography; Predictive distribution; Risk communication; Stationary equivalent population;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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