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Can an Ageing Scotland Afford Independence?

Author

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  • Katerina Lisenkova
  • Marcel Mérette

Abstract

The aim and scope of this paper is to isolate the effects of population ageing in the context of potential Scottish independence. A dynamic multiregional Overlapping Generations Computable General Equilibrium (OLG-CGE) model is used to evaluate the two scenarios. The status quo scenario assumes that Scotland stays part of the UK and all government expenditures associated with its ageing population are funded on a UK-wide basis. In the independence scenario, Scotland and the rest of the UK pay for the growing demands of their ageing populations independently. The comparison suggests that Scotland is worse off in the case of independence. The effective labour income tax rate in the independence scenario has to increase further compared with the status quo scenario. The additional increase reaches its maximum in 2035 at 1.4 percentage points. The additional rise in the tax rate is non-negligible, but is much smaller than the population ageing effect (status quo scenario) which generates an increase of about 8.5 percentage points by 2060. The difference for government finances between the status quo and independence scenarios is thus relatively small.

Suggested Citation

  • Katerina Lisenkova & Marcel Mérette, 2014. "Can an Ageing Scotland Afford Independence?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 227(1), pages 32-39, February.
    • Handle: RePEc:sae:niesru:v:227:y:2014:i:1:p:r32-r39
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    Cited by:

    1. Katerina Lisenkova & Miguel Sanchez-Martinez & James Sefton, 2015. "The sustainability of Scottish public finances: a Generational Accounting approach," National Institute of Economic and Social Research (NIESR) Discussion Papers 456, National Institute of Economic and Social Research.
    2. Philip McCann, 2017. "Urban futures, population ageing and demographic decline," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 10(3), pages 543-557.

    More about this item

    Keywords

    Scotland; independence; OLG; government spending; population ageing;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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