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Fiscal Federalism and Demography

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  • Seitz, Helmut
  • Kempkes, Gerhard

Abstract

The paper examines the effects of demographic change on federal, state and local governments in Germany with a focus on the expenditure side to answer the question, whether demographic change will induce vertical fiscal expenditure imbalances. We present estimates of the impact of demographic change on public spending based on a decomposition of expenditures into almost 30 categories (functions). Our results suggest that demographic change will indeed result in significant vertical expenditure imbalances between the federal and the subnational government sector as well as within the subnational government sector. In addition, the estimates show that the structure of expenditures by function has to be adjusted considerably in order to avoid deficits as demographically induced increases in expenditures in some important functions, such as pension payments, have to be counterbalanced by exploiting potential savings that arise from demographic change in other functions.

Suggested Citation

  • Seitz, Helmut & Kempkes, Gerhard, 2005. "Fiscal Federalism and Demography," Dresden Discussion Paper Series in Economics 10/05, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    • Handle: RePEc:zbw:tuddps:1005
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    References listed on IDEAS

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    1. Gradstein, Mark & Kaganovich, Michael, 2004. "Aging population and education finance," Journal of Public Economics, Elsevier, vol. 88(12), pages 2469-2485, December.
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    3. James M. Poterba, 1997. "Demographic structure and the political economy of public education," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(1), pages 48-66.
    4. Thai-Thanh Dang & Pablo Antolín & Howard Oxley, 2001. "Fiscal Implications of Ageing: Projections of Age-Related Spending," OECD Economics Department Working Papers 305, OECD Publishing.
    5. Jane Sneddon Little & Robert K. Triest, 2001. "Seismic shifts: the economic impact of demographic change: an overview," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 46.
    6. Willi Leibfritz & Deborah Roseveare & Douglas Fore & Eckhard Wurzel, 1995. "Ageing Populations, Pension Systems and Government Budgets: How Do They Affect Saving?," OECD Economics Department Working Papers 156, OECD Publishing.
    7. Ryan D. Edwards & Ronald D. Lee, 2001. "The fiscal impact of population change," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 46.
    8. Echevarria, Cruz A, 1995. "On Age Distribution of Population, Government Expenditure and Fiscal Federalism," Journal of Population Economics, Springer;European Society for Population Economics, vol. 8(3), pages 301-313, August.
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    Cited by:

    1. Sergey Sinelnikov & Pavel Kadochnikov & Ilya Trunin, 2008. "From Elections to Appointments of the Regional Governors: Major Challenges and Outcomes," Published Papers 2, Gaidar Institute for Economic Policy, revised 2008.

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    More about this item

    Keywords

    fiscal federalism; demographic change; vertical fiscal expenditure imbalances;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H1 - Public Economics - - Structure and Scope of Government
    • J1 - Labor and Demographic Economics - - Demographic Economics

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