Wrinkles in fiscal policy: an examination of the effects of aging demographics on public expenditures and revenues

The speculation that public spending may shift as the age composition changes in the United States raises questions regarding the sustainability of government programs. This paper addresses this issue by examining how age demographics alter a county governments spending on public goods and its sources (local taxes or intergovernmental transfers from the state and/or federal level) for funding these expenditures. Building on an existing model, this study finds that it is not enough to simply examine this question with cross-sectional analysis, suggesting that time and county fixed effects need to be considered to address consequences from the Tiebout bias. The results report that the consequences of age composition vary according to the spillover and cost dimensions of each public good. However, these changes are rendered benign as revenues shift in a similar manner as spending, which eliminates potential imbalances within county governments