Aging: Some Pleasant Fiscal Arithmetic

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Projections of age-related public expenditure growth have raised widespread concerns about fiscal sustainability. This paper examines how total expenditure would develop under four policy rules on public expenditure growth. Some simple arithmetic of expenditure, GDP, and population is reviewed and applied in simulations for 19 member countries of the Organization for Economic Cooperation and Development (OECD) over 2000–50. A general and a specific conclusion arise from the results in this paper: Generally, long-term expenditure projections could benefit from revisiting common assumptions on non-age-related expenditure growth. Specifically, under realistic assumptions, the belt-tightening required to maintain fiscal sustainability under age-related spending pressures could be less painful than commonly thought