## Shrinking Populations, Rising Fiscal Challenges

_IMF Blog, October 27, 2015_

## Source details

**Canonical URL:** [Shrinking Populations, Rising Fiscal Challenges](https://www.imf.org/en/blogs/articles/2015/10/27/shrinking-populations-rising-fiscal-challenges)

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## Bibliographic details
- Authors: Benedict Clements, Kamil Dybczak, Mauricio Soto
- Published: October 27, 2015

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### Overview and projections
- Publication date: October 27, 2015; By Benedict Clements, Kamil Dybczak, and Mauricio Soto.
- Population trajectories:
  - By the end of this century, populations will be shrinking in about two-thirds of the world’s countries: nearly 70 percent of more-developed countries and about 65 percent of less-developed ones.
  - The share of the world population older than age 65 is expected to increase from 12 percent today to 38 percent by 2100 (old-age dependency ratio: the 65-and-older population as a percentage of the population aged 15 to 64).

### Fiscal impacts and projections under unchanged policies
- Expected increases in age-related spending (pensions and health) with current policies unchanged:
  - In more-developed countries, spending will reach 25 percent of GDP by the end of the century.
  - In less-developed countries, spending will reach 16 percent of GDP by the end of the century.
- Potential fiscal consequences:
  - Unsustainable public debt, sharp cuts in other spending, or large tax increases that stifle economic growth.

### Risks to projections
- Demographic projection uncertainty:
  - If fertility and mortality turn out to be lower than forecast, fiscal impacts will be larger.
  - Example sensitivities:
    - Lower fertility on its own could raise age-related spending by another 8 percentage points of GDP in more-developed countries by the end of the century.
    - Lower fertility could raise age-related spending by another 4½ percentage points of GDP in less-developed countries by the end of the century.
  - Additional longevity increases would add further fiscal impact on top of these figures.

### Policy recommendations and potential fiscal effects
- Entitlement reform
  - Start now, but implement at a gradual pace to spread burdens across generations and reduce risk of reversals.
- Contain growth of health care spending
  - If growth in health care costs per capita were kept in line with growth in GDP per capita:
    - This could lower public health care spending by 4½ percentage points of GDP by 2100 in more-developed countries.
    - This could lower public health care spending by 3 percentage points of GDP by 2100 in less-developed countries.
  - Possible measures: increase competition among insurers and service providers; improve provider payment systems; emphasize primary and preventive health; make more effective use of health information technology.
- Increase retirement ages to match longevity gains
  - Increasing the retirement age by an extra five years has the potential to yield savings on pension spending of about 2 percentage points of GDP in both more- and less-developed countries.
  - Accompany increases with adequate provisions for the poor, who have shorter life expectancy than the average population.
- Policies affecting demographics and labor markets
  - Raising migration from younger, less-developed economies to older, more-developed economies can relieve spending pressures until migrants age and retire; not a substitute for fundamental entitlement reforms.
  - Boosting fertility has limited responsiveness to public policy.
  - Raise labor force participation—especially for women and older workers—by addressing:
    - Gender differences in property rights, inheritance claims, and property titling.
    - Barriers to women pursuing professions, obtaining jobs, or opening bank accounts.
    - Legal rights for women to initiate legal proceedings, sign contracts, and head households.
    - Fiscal disincentives such as taxation of households that raise marginal rates for second earners.
- Improve tax systems and public expenditure efficiency
  - Tax-side measures: widen VAT bases; strengthen taxation of multinational corporations; greater use of energy taxation; exploit recurrent property taxation; strengthen tax compliance.
  - Spending-side measures: reduce energy subsidies; improve public investment management; rationalize public sector wage bills, including in education.

### Summary conclusion
- The fiscal challenge from shrinking and aging populations is stark and requires bold, multi-pronged reforms.
- Undertaking reforms now allows more gradual, politically palatable adjustment and reduces the risk of unsustainable fiscal outcomes.

*Source: Shrinking Populations, Rising Fiscal Challenges (IMF blog, October 27, 2015).*

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## Content in this bundle

- **人口缩减，财政挑战增加; iMFdirect博客; 2015 年10 月27 日**
  - [人口缩减，财政挑战增加; iMFdirect博客; 2015 年10 月27 日 (Markdown version)](/external/chinese/np/blog/2015/102715c.pdf.md){rel="alternate" type="text/markdown"}
  - [人口缩减，财政挑战增加; iMFdirect博客; 2015 年10 月27 日 (PDF)](/external/chinese/np/blog/2015/102715c.pdf){rel="external" type="application/pdf"}
- **減少する人口、増大する財政面での課題: ベネディクト・クレメンツ、 カミール・ドゥブチャック、モリシオ・ソト; iMFdirect ブログ2015年10月27日掲載**
  - [減少する人口、増大する財政面での課題: ベネディクト・クレメンツ、 カミール・ドゥブチャック、モリシオ・ソト; iMFdirect ブログ2015年10月27日掲載 (Markdown version)](/external/japanese/np/blog/2015/102715j.pdf.md){rel="alternate" type="text/markdown"}
  - [減少する人口、増大する財政面での課題: ベネディクト・クレメンツ、 カミール・ドゥブチャック、モリシオ・ソト; iMFdirect ブログ2015年10月27日掲載 (PDF)](/external/japanese/np/blog/2015/102715j.pdf){rel="external" type="application/pdf"}
- **Fiscal Monitor: Taxing Times; October 2013**
  - [Fiscal Monitor: Taxing Times; October 2013 (Markdown version)](/external/pubs/ft/fm/2013/02/pdf/fm1302.pdf.md){rel="alternate" type="text/markdown"}
  - [Fiscal Monitor: Taxing Times; October 2013 (PDF)](/external/pubs/ft/fm/2013/02/pdf/fm1302.pdf){rel="external" type="application/pdf"}
- **Fiscal Monitor: Public Expenditure Reform—Making Difficult Choices; April 2014**
  - [Fiscal Monitor: Public Expenditure Reform—Making Difficult Choices; April 2014 (Markdown version)](/external/pubs/ft/fm/2014/01/pdf/fm1401.pdf.md){rel="alternate" type="text/markdown"}
  - [Fiscal Monitor: Public Expenditure Reform—Making Difficult Choices; April 2014 (PDF)](/external/pubs/ft/fm/2014/01/pdf/fm1401.pdf){rel="external" type="application/pdf"}
- **Country Report**
  - [Country Report (Markdown version)](/external/pubs/ft/scr/2015/cr15188.pdf.md){rel="alternate" type="text/markdown"}
  - [Country Report (PDF)](/external/pubs/ft/scr/2015/cr15188.pdf){rel="external" type="application/pdf"}
- **Staff Discussion Note**
  - [Staff Discussion Note (Markdown version)](/external/pubs/ft/sdn/2015/sdn1502.pdf.md){rel="alternate" type="text/markdown"}
  - [Staff Discussion Note (PDF)](/external/pubs/ft/sdn/2015/sdn1502.pdf){rel="external" type="application/pdf"}
- **Staff Discussion Note**
  - [Staff Discussion Note (Markdown version)](/external/pubs/ft/sdn/2015/sdn1521.pdf.md){rel="alternate" type="text/markdown"}
  - [Staff Discussion Note (PDF)](/external/pubs/ft/sdn/2015/sdn1521.pdf){rel="external" type="application/pdf"}

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## References

- [Benedict Clements](http://blogs.imf.org/bloggers/benedict-clements/)
- [Kamil Dybczak](http://blogs.imf.org/bloggers/kamil-dybczak/)
- [Mauricio Soto](http://blogs.imf.org/bloggers/mauricio-soto/)

_Source: https://www.imf.org/en/blogs/articles/2015/10/27/shrinking-populations-rising-fiscal-challenges_