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Fiscal Federalism and Demography

  • Seitz, Helmut
  • Kempkes, Gerhard
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    The paper examines the effects of demographic change on federal, state and local governments in Germany with a focus on the expenditure side to answer the question, whether demographic change will induce vertical fiscal expenditure imbalances. We present estimates of the impact of demographic change on public spending based on a decomposition of expenditures into almost 30 categories (functions). Our results suggest that demographic change will indeed result in significant vertical expenditure imbalances between the federal and the subnational government sector as well as within the subnational government sector. In addition, the estimates show that the structure of expenditures by function has to be adjusted considerably in order to avoid deficits as demographically induced increases in expenditures in some important functions, such as pension payments, have to be counterbalanced by exploiting potential savings that arise from demographic change in other functions.

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    File URL: http://econstor.eu/bitstream/10419/22727/1/DDPE200510.pdf
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    Paper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 10/05.

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    Date of creation: 2005
    Date of revision:
    Handle: RePEc:zbw:tuddps:1005
    Contact details of provider: Postal: 01062 Dresden
    Phone: ++49 351 463 2196
    Fax: ++49 351 463 7739
    Web page: http://www.tu-dresden.de/wiwi/Email:


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    1. James M. Poterba, 1996. "Demographic Structure and the Political Economy of Public Education," NBER Working Papers 5677, National Bureau of Economic Research, Inc.
    2. Willi Leibfritz & Deborah Roseveare & Douglas Fore & Eckhard Wurzel, 1995. "Ageing Populations, Pension Systems and Government Budgets: How Do They Affect Saving?," OECD Economics Department Working Papers 156, OECD Publishing.
    3. George Hondroyiannis & Evangelia Papapetrou, 2000. "Do Demographic Changes Affect Fiscal Developments?," Public Finance Review, , vol. 28(5), pages 468-488, September.
    4. Jane Sneddon Little & Robert K. Triest, 2001. "Seismic shifts: the economic impact of demographic change: an overview," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 46.
    5. Thai-Thanh Dang & Pablo Antolín & Howard Oxley, 2001. "Fiscal Implications of Ageing: Projections of Age-Related Spending," OECD Economics Department Working Papers 305, OECD Publishing.
    6. Gradstein, Mark & Kaganovich, Michael, 2003. "Aging Population and Education Finance," CEPR Discussion Papers 3950, C.E.P.R. Discussion Papers.
    7. 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.
    8. Ronald D. Lee & Ryan D. Edwards, 2001. "The fiscal impact of population change," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 46.
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