THE FISCAL EFFECTS OF POPULATION AGING IN THE U.S.: ASSESSING THE UNCERTAINTIES

Population aging, accelerating as the Baby Boom generations age, will have important fiscal consequences because expenditures on social secu-rity, Medicare, and institutional Medicaid make up more than a third of the federal budget. However, the projected fiscal pressures are far in the future, and long-term projections are very unreliable. Our analysis here has two goals: to examine the fiscal impact of population aging, and to do this in a probabilistic setting. We find that the old age dependency ratio is virtually certain to rise by more than 50 % through the 2030s, and will probably continue to increase after 2050, possibly by a great deal. Under current program structures, population aging would be virtually certain to increase the costliness of Federal programs as a share of GDP by 35 percent (±2 percent) by the 2030s, and by 60 percent ( ± 15 percent) in the second half of the century. We project Federal expenditures (excluding interest payments and pre-funded programs) to rise from 16 percent of GDP in 2000 to 30 percent in 2075, almost doubling, while state and loca