The economic consequences of ageing populations

This paper examines the economic implications of ageing populations. Simulations with the QUEST II model, which take explicit account of the labour force and public finance implications of ageing, suggest per capita living standards in the EU, US and Japan are likely to fall significantly over the next 50 years due to the direct influence of the ageing process. The effect of ageing populations in terms of slowing the rate of growth of potential output will also make the budgetary implications of ageing more difficult for the individual economies to bear. If the scenarios prove accurate, economic agents in Europe could be looking at an annual half point reduction in potential growth rates from the present 2 ¼ percent to an average rate of 1 ¾ percent over the period 2000-2050, representing a cumulative GDP loss of nearly 20 percent. Cumulative reductions of 10% and 21½% are predicted for the US and Japan respectively. While it can be argued that the latter no policy change simulation may be unrealistic in that Governments are unlikely to stand idly by, it nevertheless gives an idea of the scale of the task faced by policymakers in devising policy measures aimed at avoiding, or at least cushioning, the potential shock to peoples' living standards.