Demographic Change and Fiscal Sustainability in Asia

34 Pages Posted: 19 Jul 2016

See all articles by Sang-Hyop Lee

Sang-Hyop Lee

University of Hawaii - Department of Economics

Jungsuk Kim

Sogang University - Institute of International and Area Studies

Donghyun Park

Asian Development Bank - Economic Research

Date Written: April 2016

Abstract

Changes in the population age structure can have a significant effect on fiscal sustainability since they can affect both government revenues and expenditures. For example, population aging will increase expenditures on the elderly while reducing potential growth and hence revenues. In this paper, we project government revenue, expenditure, and fiscal balance in developing Asia up to 2050. Using a simple stylized model and the National Transfer Accounts data set, we simulate the effect of both demographic changes and economic growth. Rapidly aging economies like the Republic of Korea; Japan; and Taipei,China, are likely to suffer a tangible deterioration of fiscal sustainability under their current tax and expenditure system. On the other hand, rapid economic growth can improve fiscal health in poorer economies with relatively young populations and still-growing working-age populations. Overall, our simulation results indicate that Asia’s population aging will adversely affect its fiscal sustainability, pointing to a need for Asian economies to further examine the impact of demographic shifts on their fiscal health.

Keywords: Asia, fiscal balance, fiscal projection, population aging, public spending, tax

JEL Classification: H20, H50, H62, J11, J14

Suggested Citation

Lee, Sang-Hyop and Kim, Jungsuk and Park, Donghyun, Demographic Change and Fiscal Sustainability in Asia (April 2016). Asian Development Bank Economics Working Paper Series No. 481. Available at SSRN: https://ssrn.com/abstract=2811531 or http://dx.doi.org/10.2139/ssrn.2811531

Sang-Hyop Lee (Contact Author)

University of Hawaii - Department of Economics ( email )

2424 Maile Way, SSB 542
Honolulu, HI 96822
United States
808-956-8590 (Phone)

Jungsuk Kim

Sogang University - Institute of International and Area Studies ( email )

35 Baekbeom-ro
Mapo-gu
Seoul, Seoul 121-742
Korea, Republic of (South Korea)

Donghyun Park

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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