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Population ageing, labour markets and the outlook for public finances

Author

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  • Helvi Kinnunen

    (Bank of Finland)

Abstract

Keeping public finances on a sustainable foundation while the population ages is clearly a problem in Finland, as in many other western countries. The shrinking of the working-age population, ageing of the labour force, and growth in the number of very old persons form a difficult combination vis-à-vis sustainable public finances. An age structure that is changing in unfavourable ways has long-run consequences for balance of public finances and room for fiscal policy. With structural unemployment lodged at a high level and the average age of the labour force trending upward in the coming years, the financial foundation for public services is on the decline. Calculations extending the Bank of Finland’s 2004-horizon forecast indicate that if definite changes in retirement rates are not forthcoming, the pressure for tax tightening in the near future will be conspicuous. The projections show that pension reform alone will not dispel the pressure for tax increases. But if, in addition to pension reform, the productivity of service production in the public sector is boosted, ageing will not necessarily lead to tax tightening.

Suggested Citation

  • Helvi Kinnunen, 2004. "Population ageing, labour markets and the outlook for public finances," Public Economics 0405002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwppe:0405002
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    More about this item

    Keywords

    population ageing; tax rate; pension reform; efficiency of public sector;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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