Public Debt, Population Ageing and Medium-Term Growth

62 Pages Posted: 26 Sep 2015

See all articles by Alistair Dieppe

Alistair Dieppe

European Central Bank (ECB)

Paolo Guarda

Banque Centrale du Luxembourg

Maria Albani

Bank of Greece

Alberto GonzÁlez Pandiella

European Central Bank (ECB)

Owen Grech

Central Bank of Malta

Delphine Irac

Banque de France

Juha Kilponen

Bank of Finland - Research

Dmitry Kulikov

Bank of Estonia

Luca Marchiori

Banque Centrale du Luxembourg

Ricardo Félix

Banco do Portugal

Niki Papadopoulou

Central Bank of Cyprus

Maria Lisa Rodano

Bank of Italy

Dimitris Sideris

Bank of Greece

Edgar Vogel

Deutsche Bundesbank; Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA)

Esther Gordo Mora

Banco de España

Date Written: September 25, 2015

Abstract

This paper analyses the challenges that high public debt and ageing populations pose to medium-term growth. First, macroeconometric model simulations suggest that medium-term growth can benefit from credible fiscal consolidation, partly through reductions in sovereign risk premia. Second, a disaggregated growth accounting exercise suggests that the impact of population ageing on medium-term growth can be mitigated by structural reforms boosting labour force participation. Finally, general equilibrium models suggest that pay-as-you-go public pension systems will require reforms combining lower benefits, a later retirement age and higher social contributions. These findings suggest several policy recommendations: (a) “fiscal space” should be preserved to counter adverse shocks, (b) credible fiscal plans can benefit growth through the sovereign risk channel, (c) the demographic transition increases the need for improved fiscal policy coordination and more flexible labour migration policies, and (d) fiscal consolidation should avoid perverse incentive effects that could lower labour supply and medium-term growth.

Keywords: medium-term growth, fiscal consolidation, sovereign debt, structural

JEL Classification: E17, E23, E24, E62, F47, J1

Suggested Citation

Dieppe, Alistair and Guarda, Paolo and Albani, Maria and Gonzalez Pandiella, Alberto and Grech, Owen and Irac, Delphine and Kilponen, Juha and Kulikov, Dmitry and Marchiori, Luca and Félix, Ricardo and Papadopoulou, Niki and Rodano, Maria Lisa and Sideris, Dimitris and Vogel, Edgar and Gordo Mora, Esther, Public Debt, Population Ageing and Medium-Term Growth (September 25, 2015). ECB Occasional Paper No. 165, Available at SSRN: https://ssrn.com/abstract=2665731

Alistair Dieppe (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Paolo Guarda

Banque Centrale du Luxembourg ( email )

2, boulevard Royal
Luxembourg, L-2983
Luxembourg

Maria Albani

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Alberto Gonzalez Pandiella

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Owen Grech

Central Bank of Malta ( email )

Valletta, 1060
Malta

Delphine Irac

Banque de France ( email )

Paris
France

Juha Kilponen

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland
+358 10 831 2847 (Phone)
+358 10 831 2294 (Fax)

HOME PAGE: http://www.bof.fi/en/suomen_pankki/organisaatio/asiantuntijoita/kilponen_juha/

Dmitry Kulikov

Bank of Estonia ( email )

Estonia Building 13
15095 Tallinn
Estonia

Luca Marchiori

Banque Centrale du Luxembourg ( email )

2, boulevard Royal
Luxembourg, L-2983
Luxembourg

Ricardo Félix

Banco do Portugal ( email )

Niki Papadopoulou

Central Bank of Cyprus ( email )

80 Kennedy Ave
1076 Nicosia
Cyprus

Maria Lisa Rodano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Dimitris Sideris

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Edgar Vogel

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Strasse 14
Frankfurt am Main, 60431
Germany

HOME PAGE: http://www.bundesbank.de

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

Esther Gordo Mora

Banco de España ( email )

Madrid 28014
Spain

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