Uncertain Demographics and Fiscal Sustainability

Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
Figures......Page 9
Tables......Page 13
Contributors......Page 16
Preface......Page 18
Part I Uncertain demographics......Page 27
1 Introduction......Page 19
Demographic issues......Page 20
Measurement issues......Page 21
Policy issues......Page 22
Methodological issues......Page 24
Introduction......Page 29
Conventional and stochastic population forecasts based
on the cohort-component method......Page 31
Fertility......Page 32
Mortality......Page 37
The UPE assumptions......Page 42
Fertility......Page 45
Mortality......Page 46
Migration......Page 47
Conclusions......Page 48
REFERENCES......Page 50
Introduction......Page 52
Uncertainty in official forecasts of total population......Page 54
Problems of coherence in conventional forecasts......Page 56
Scaled model for uncertainty......Page 57
Approaches to assessing forecast uncertainty......Page 59
Variance of total fertility and age-specific fertility......Page 62
Variance and autocorrelation of age-specific mortality......Page 63
Variance and autocorrelation of net migration......Page 66
Appendix: Conventional and stochastic population
forecasts – pros and cons......Page 69
REFERENCES......Page 71
Introduction......Page 73
Specification of forecast error structure......Page 74
Persistent variability: a key feature of stochastic forecasts......Page 75
Mortality and the distribution of deaths......Page 76
Sources of variability......Page 77
Analytical approaches......Page 78
REFERENCES......Page 79
Part II Measuring sustainability in a stochastic environment......Page 81
Introduction......Page 83
The basic demographic framework......Page 84
Modelling demographic uncertainty:
mortality and fertility......Page 86
Assessment of tax increases needed for fiscal stabilization......Page 88
Model descriptions......Page 90
Germany......Page 91
Spain......Page 92
Germany......Page 93
Summary of results and conclusions......Page 95
REFERENCES......Page 98
Introduction......Page 100
Uncertainty in pension expenditures varies between countries......Page 101
Pension system rules......Page 102
Modelling immigration......Page 103
Models......Page 104
Discussing uncertainty with sensitivity analysis......Page 105
Future directions......Page 107
NOTES......Page 109
REFERENCES......Page 110
Introduction......Page 112
Age-profile of health expenditure......Page 113
Demographic uncertainty......Page 115
Health expenditure under demographic uncertainty......Page 116
Fertility......Page 119
Mortality......Page 120
Importance of cost pressure relative to demographic uncertainty......Page 122
Conclusions......Page 123
NOTES......Page 124
REFERENCES......Page 125
COMMENT Assessing the uncertainty in long-term fiscal projections......Page 127
NOTES......Page 130
REFERENCES......Page 131
Part III Enhancing sustainability......Page 133
Introduction......Page 135
Calculation of pension benefits......Page 137
Determinants of the population model......Page 138
The structure of the economic model......Page 140
Calibration and simulation......Page 143
Future benefit cuts and their impact on
welfare and risk-sharing......Page 147
Effects on contribution and replacement rates......Page 148
Expected welfare changes and intergenerational risk-sharing......Page 149
Conclusion......Page 151
REFERENCES......Page 153
Introduction......Page 155
Details of longevity adjustment define the risk-sharing properties......Page 156
Longevity adjustment in Sweden......Page 157
Previous economic analysis of longevity adjustment......Page 159
The Finnish earnings-related pension system......Page 160
The economic model......Page 164
Pension contribution and replacement rates......Page 167
Intergenerational fairness......Page 172
Saving and labour supply......Page 174
Conclusions......Page 176
REFERENCES......Page 177
Introduction......Page 179
The GAMMA model......Page 181
Ageing and unsustainable government finances......Page 183
Optimal policy under demographic certainty......Page 185
Stochastic demographics......Page 189
Optimal policy under demographic uncertainty......Page 192
Conclusions......Page 196
Appendix: A stylized two-period example......Page 197
NOTES......Page 199
REFERENCES......Page 200
Deterministic CGE models of ageing......Page 202
Demographic uncertainty......Page 203
Idiosyncratic uncertainty......Page 204
Macro-economic uncertainty......Page 205
Stochastic models......Page 206
Future directions......Page 207
REFERENCES......Page 209
Part IV Extensions......Page 211
Introduction......Page 213
Main features of the point forecast......Page 214
Stochastic forecasts of the world population: methodological issues......Page 216
Stochastic forecasts of the world population: main results......Page 218
INGENUE 2: a long-term model for the world economy......Page 220
Macro-economic consequences of demographic
uncertainty in a multi-regional model......Page 223
Macro-economic dynamics with perfect interregional
correlation vs. independence......Page 229
Conclusion......Page 233
NOTES......Page 234
REFERENCES......Page 235
Introduction......Page 237
Demographics......Page 239
The consumer’s problem......Page 242
Calibration......Page 244
The welfare cost of not taking aggregate mortality risk into account......Page 245
Perfect foresight vs rational expectations......Page 250
Bracketing rational expectations......Page 252
Conclusions......Page 253
REFERENCES......Page 255
Introduction......Page 257
Demographics......Page 259
Individual optimization and household behaviour......Page 260
Resources and social security......Page 261
The solution technique......Page 262
Economic effects of demographic shocks......Page 264
Performance criteria......Page 268
Results......Page 269
Conclusions......Page 272
NOTES......Page 273
REFERENCES......Page 274
Introduction......Page 276
The model......Page 278
Model solution......Page 282
Results......Page 283
Conclusions......Page 284
NOTES......Page 286
REFERENCES......Page 287
Household behaviour and welfare......Page 288
The scope for insurance......Page 290
Conclusions......Page 291
REFERENCES......Page 292
Index......Page 293