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Demographic Change and Fiscal Sustainability in Asia

Author

Listed:
  • LEE Sang-Hyop

    (East-West Center and University of Hawaii)

  • KIM Jungsuk

    (Institute of International and Area Studies, Sogang University, Korea)

  • PARK Donghyun

    (Asian Development Bank, Manila, Philippines)

Abstract

Changes in the population age structure can have a significant effect on fiscal sustainability since they can affect both government revenue and expenditure. For example, population ageing will increase expenditure on the elderly while reducing potential growth and hence revenue. In this paper, we project government revenue, expenditure, and fiscal balance in developing Asia up to 2050. Using a simple stylised model and the National Transfer Accounts (NTA) data set, we simulate the effect of both demographic changes and economic growth. Rapidly ageing countries like the Republic of Korea, Japan, and Taiwan, are likely to suffer a tangible deterioration of fiscal sustainability under their current tax and expenditure system. On the other hand, rapid economic growth can improve fiscal health in poorer countries with relatively young populations and still growing working-age populations. Overall, our simulation results indicate that Asia’s population ageing will adversely affect its fiscal sustainability, pointing to a need for Asian countries to further examine the impact of demographic shifts on their fiscal health.

Suggested Citation

  • LEE Sang-Hyop & KIM Jungsuk & PARK Donghyun, 2016. "Demographic Change and Fiscal Sustainability in Asia," Working Papers DP-2016-11, Economic Research Institute for ASEAN and East Asia (ERIA).
    • Handle: RePEc:era:wpaper:dp-2016-11
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    References listed on IDEAS

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    Cited by:

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    2. Taehwan Rhee & Jacob Wood & Jungsuk Kim, 2022. "Digital Transformation as a Demographic and Economic Integrated Policy for Southeast Asian Developing Countries," Sustainability, MDPI, vol. 14(5), pages 1-19, March.
    3. George Kudrna & John Piggott & Phitawat Poonpolkul, 2022. "Extending pension policy in emerging Asia: An overlapping-generations model analysis for Indonesia," CAMA Working Papers 2022-14, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    4. Kim, Hyun Kyung & Lee, Sang-Hyop, 2021. "The effects of population aging on South Korea’s economy: The National Transfer Accounts approach," The Journal of the Economics of Ageing, Elsevier, vol. 20(C).
    5. Rimon Saha & Udaya S. Mishra, 2022. "Development goals, population demography and state expenditure on human priority sectors: a study of Indian major states," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 69(1), pages 21-47, March.
    6. Patrik Rovný & Serhiy Moroz & Jozef Palkovič & Elena Horská, 2021. "Impact of Demographic Structure on Economic Development of Ukrainian Coastal Regions," Sustainability, MDPI, vol. 13(4), pages 1-19, February.
    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.

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    More about this item

    Keywords

    Fiscal projection; tax; public spending; fiscal balance; population ageing; Asia;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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