IMF paper studies fiscal impact of ageing population

A working paper, published by the International Monetary Fund in June, examines the impact of an ageing population on 'fiscal space', which measures the extent to which governments can increase their expenditure while maintaining sustainable finances.

The author, Seok Gil Park, uses a neoclassical growth model to analyse annual data from the G-7 countries from 1995–2009. The paper finds that fiscal space shrinks most in response to an ageing population in countries with larger governments (France, Germany and Italy), while the impact is more minimal in countries with smaller governments (the US, Japan and Canada).

The paper argues that governments should act to address this problem. "The results imply that corrective policy measures, such as pension reform and a flexible expenditure policy, would be required in order to mitigate the impact of ageing on fiscal space," the author says.

Click here to read the paper.