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Three takes on sustainability

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  • Honkatukia, Juha

Abstract

Ageing of the population causes a two-fold problem for the sustainability of public finances. It tends to increase public expenditure on age-related services and the demand for labor in the sectors providing these services at the same time as it causes labor supply to stagnate or even fall, as the case may be in Finland. All of these effects exert a pressure on public finances and sustainability. Tackling the problem is not easy, since it boils down to raising extra revenue and creating incentives for the labor supply to expand simultaneously. This poses challenges for re-evaluating the entire tax structure and other sources of funding for the social security and pension systems. The analysis of these complex problems requires the use of numerical models. This book studies the roles of taxation, pension funds, as well as the central and local governments from the points of view of sustainability and efficiency with the help of three different numerical, general equilibrium models. We find that increasing the efficiency of taxation via tax reforms may help in improving sustainability. However, raising the required extra funding may aggravate the supply side problem. To boot, the uncertainties associated with aging itself may call for precautionary setting of stringent sustainability targets.

Suggested Citation

  • Honkatukia, Juha, 2011. "Three takes on sustainability," Research Reports P58, VATT Institute for Economic Research.
    • Handle: RePEc:fer:resrep:p58
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    File URL: https://www.doria.fi/handle/10024/148893
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    References listed on IDEAS

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    1. Alho, Juha M. & Hougaard Jensen, Svend E. & Lassila, Jukka & Valkonen, Tarmo, 2005. "Controlling the effects of demographic risks: the role of pension indexation schemes," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(2), pages 139-153, July.
    2. Alan J. Auerbach & Ronald Lee, 2009. "Notional Defined Contribution Pension Systems in a Stochastic Context: Design and Stability," NBER Chapters, in: Social Security Policy in a Changing Environment, pages 43-68, National Bureau of Economic Research, Inc.
    3. Fehr, Hans & Habermann, Christian, 2006. "Pension reform and demographic uncertainty: the case of Germany," Journal of Pension Economics and Finance, Cambridge University Press, vol. 5(1), pages 69-90, March.
    4. Alex Armstrong & Nick Draper & Ed Westerhout, 2008. "The impact of demographic uncertainty on public finances in the Netherlands," CPB Discussion Paper 104, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Valkonen, Tarmo, 2002. "Demographic Uncertainty and Taxes," Discussion Papers 816, The Research Institute of the Finnish Economy.
    6. Alho, Juha M. & Vanne, Reijo, 2006. "On predictive distributions of public net liabilities," International Journal of Forecasting, Elsevier, vol. 22(4), pages 725-733.
    7. repec:zbw:bofrdp:2008_028 is not listed on IDEAS
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    Cited by:

    1. Moisio, Antti, 2012. "Rethinking local government: Essays on municipal reform," Research Reports P61, VATT Institute for Economic Research.
    2. Honkatukia, Juha, 2019. "Evaluating the welfare effects of public health care provision - an integrated, regional AGE model for Finland," Conference papers 333101, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Korkeamäki, Ossi, 2012. "Essays on labour demand and wage formation," Research Reports P60, VATT Institute for Economic Research.
    4. Lassila, Jukka, 2018. "Aggregate Risks, Intergenerational Risk-Sharing and Fiscal Sustainability in the Finnish Earnings-Related Pension System," ETLA Working Papers 57, The Research Institute of the Finnish Economy.
    5. Moisio, Antti, 2012. "Rethinking local government: Essays on municipal reform," Research Reports 61, VATT Institute for Economic Research.
    6. Honkatukia, Juha & Vaittinen, Risto, 2021. "To Have and Have Not - Evaluating the costs and benefits of the welfare state with an AGE model of Finland with Intergenerational Accounting," Conference papers 333315, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    7. Jukka Lassila & Tarmo Valkonen, 2018. "Longevity, Working Lives, And Public Finances," Contemporary Economic Policy, Western Economic Association International, vol. 36(3), pages 467-482, July.

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