Uncertain Demographics And Fiscal Sustainability

There is widespread acceptance that much of the developed world faces a potential pensions and welfare crisis as a result of declining birth rates and an ageing population. However, there is considerable uncertainty about the specifics of demographic forecasting and this has significant implications for public finances. Uncertain Demographics and Fiscal Sustainability addresses the economic consequences of uncertainty and, with particular reference to European economies, explores the impact of demographic risks on public finances, including pension systems, health care and old-age care expenditures. Covering a spectrum of theoretical and empirical approaches, different types of computational models are used to demonstrate not only the magnitudes of the uncertainties involved but also how these can be addressed through policy initiatives. The book is divided into four parts covering demographic, measurement, policy and methodological issues. Each part is followed by a discussion essay that draws out key elements and identifies common themes.

Uncertain Demographics and Fiscal Sustainability addresses the economic consequences of uncertainty in demographic forecasting.

Presenting innovative modelling approaches to the analysis of fiscal policy and government debt, this book moves beyond previous models that have relied upon the assumption that various age-specific rates and policy variables remain unchanged when it comes to generating government expenditures and tax revenues. As a result of population ageing, current policy settings in many countries are projected to lead to unsustainable levels of public debt; Tax Policy and Uncertainty explores models that allow for feedbacks and uncertainty to combat this.

"The ongoing COVID-19 pandemic marks the most significant, singular global disruption since World War II, with health, economic, political, and security implications that will ripple for years to come." -Global Trends 2040 (2021) Global Trends 2040-A More Contested World (2021), released by the US National Intelligence Council, is the latest report in its series of reports starting in 1997 about megatrends and the world's future. This report, strongly influenced by the COVID-19 pandemic, paints a bleak picture of the future and describes a contested, fragmented and turbulent world. It specifically discusses the four main trends that will shape tomorrow's world: - Demographics-by 2040, 1.4 billion people will be added mostly in Africa and South Asia. - Economics-increased government debt and concentrated economic power will escalate problems for the poor and middleclass. - Climate-a hotter world will increase water, food, and health insecurity. - Technology-the emergence of new technologies could both solve and cause problems for human life. Students of trends, policymakers, entrepreneurs, academics, journalists and anyone eager for a glimpse into the next decades, will find this report, with colored graphs, essential reading.

It is well known by now that population ageing threatens the sustainability of fiscal policies in many countries. Although a number of policy options are available to address the problem, the uncertainty surrounding the future development of the population complicates matters. This paper analyses the economic, intergenerational and welfare effects of several alternative taxation policies that can be used to close the fiscal sustainability gap: immediate tax smoothing, delayed tax smoothing and balanced budget policies. A distinction is made between a consumption tax and a labour income tax. In addition, the influence of demographic uncertainty on the results of these policies is analysed from a number of perspectives. Simulated population shocks show the effect of demographic volatility on macroeconomic and fiscal variables. Stochastic simulations are presented to produce probabilistic bounds for the future development of the economic outcomes and to analyse the issue of optimal fiscal policy under uncertainty.

This Staff Discussion Note looks at the stark fiscal challenges posed by the decline and aging of populations between now and 2100. It finds that without reforms, pensions and health spending would rise to 25 percent of GDP by end-century in more developed countries (and 16 percent of GDP in less developed countries), with potentially dire fiscal consequences. Given the uncertainty underlying the population projections and associated large fiscal risks, a multi-pronged approach will be required. This could include entitlement reform—starting now but at a gradual pace; policies that affect demographics and labor markets; and better tax systems and more efficient public expenditure.