Research Discussion Papers, Bank of Finland
No 28/2002:
Population ageing, labour markets and the outlook for public finances
Helvi Kinnunen ()
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.
Keywords: population ageing; tax rate; pension reform; efficiency of public sector; (follow links to similar papers)
JEL-Codes: H55; H62; J11; J18; (follow links to similar papers)
32 pages, November 18, 2002
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