Demographic challenges, fiscal sustainability and economic growth

Debates over the economic effects of demographic change have been raging for over 200 years. Since Thomas Malthus hypothesised in 1798 that rapid population growth would stretch the earth’s resources beyond the breaking point, leading to mass starvation and death, demographers and economists have argued: first, about whether this would come to pass, and then, about why it did not. More recently, discussions about population size have given way to theories suggesting population age structure and health status are key demographic determinants of economic progress. In this brief summary of the impacts of population change on macroeconomic performance, we first set out some key facts about the world’s population. We discuss the effects of improvements in population health on economic development in general, before focusing more specifically on demographic effects. We then trace the history of how Malthusian pessimism gave way to population “optimism”, which argued that rapid population growth could be an economic asset, and then to a “neutralist” view, which posited that population growth neither promoted nor impeded economic growth. Next, we examine how new ideas on the impact of population age structure and population health have challenged traditional thinking. Finally, we look at the policy implications of this finding – in particular, at how economies can reap the benefits of a baby boom and prepare for population ageing.