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Do Demographic Changes Affect Fiscal Developments?

Author

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  • George Hondroyiannis

    (Bank of Greece and Harokopio University)

  • Evangelia Papapetrou

    (University of Athens)

Abstract

This article analyzes the effects of demographic changes (low fertility rates and a high old-age dependency ratio) on fiscal developments (debt, expenditure, tax revenues, social security expenditure, and social welfare revenues to GDP ratios) in Greece over the period 1960 to 1995. The empirical evidence suggests that there is a long-run relationship between each fiscal variable and the two demographic variables. The estimation results show that in the long-run the double-aging process-an increase in the old-age dependency ratio and a decrease in the fertility rate-will increase the size of public debt and total expenditure while decreasing total tax revenues. Similar results are obtained for the social security budget. Using vector error correction model estimation, the results support the proposition that the double-aging process is responsible for the deterioration of fiscal development. The results have important policy implications because the adoption of suitable policies should help improve budget developments, facilitating the real convergence of the Greek economy.

Suggested Citation

  • George Hondroyiannis & Evangelia Papapetrou, 2000. "Do Demographic Changes Affect Fiscal Developments?," Public Finance Review, , vol. 28(5), pages 468-488, September.
    • Handle: RePEc:sae:pubfin:v:28:y:2000:i:5:p:468-488
    DOI: 10.1177/109114210002800505
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    References listed on IDEAS

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    Cited by:

    1. Hondroyiannis, George & Lolos, Sarantis & Papapetrou, Evangelia, 2005. "Financial markets and economic growth in Greece, 1986-1999," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(2), pages 173-188, April.
    2. George Hondroyiannis & Sarantis Lolos & Evangelia Papapetrou, 2004. "Financial Markets and Economic Growth in Greece," Working Papers 17, Bank of Greece.
    3. Helmut Seitz & Gerhard Kempkes, 2007. "Fiscal Federalism and Demography," Public Finance Review, , vol. 35(3), pages 385-413, May.
    4. Mateo Zokalj, 2016. "The impact of population aging on public finance in the European Union," Financial Theory and Practice, Institute of Public Finance, vol. 40(4), pages 383-412.
    5. Seitz, Helmut & Kempkes, Gerhard, 2005. "Fiscal Federalism and Demography," Dresden Discussion Paper Series in Economics 10/05, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    6. Gindra Kasnauskiene & Karol Michnevic, 2017. "Contribution of increased life expectancy to economic growth: evidence from CEE countries," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 6(2), pages 82-99, November.
    7. Olayiwola, Saheed O. & Osakede, Uche Abamba & Adeyemi, Francis O., 2023. "Fiscal Sustainability and Demographic Transition in Nigeria," African Journal of Economic Review, African Journal of Economic Review, vol. 12(1), March.
    8. Pengkun Wu & Yuanyuan Wu & Chong Wu, 2018. "Research on Fertility Policy in China: The Relative Necessity for Reform Among the Different Provinces," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 135(2), pages 751-767, January.
    9. Michael Hofmann & Gerhard Kempkes & Helmut Seitz, 2008. "Demographic Change and Public Sector Budgets in a Federal System," CESifo Working Paper Series 2317, CESifo.
    10. Wang, Qingfeng & Sun, Xu, 2016. "The Role of Socio-political and Economic Factors in Fertility Decline: A Cross-country Analysis," World Development, Elsevier, vol. 87(C), pages 360-370.

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