Handbook of Aging and the Social Sciences.

Abstract

The aging of the US and world populations has caused grave concern among experts about the ability of the nation, and other developed nations, to afford the programs that benefit the retired population, especially public pensions and health insurance. The linkages between population aging and the looming fiscal crisis are both direct and indirect. The most direct fiscal impacts of population aging will come in the form of rapidly increasing budget outlays for entitlement programs—those programs that provide automatic benefits to individuals based on statutory eligibility. The indirect fiscal impacts of aging stem from its effects on the three sources of economic growth: the composition of the workforce, national saving, and productivity. Slower projected growth in those factors means slower future economic growth, which has important impacts on both revenue and spending growth. This chapter describes these indirect impacts on the economy and their linkages to fiscal outcomes and discusses the direct impacts of population aging on budget outcomes and the long-term gap between revenues and outlays. One measure of the severity of the imbalance between spending and revenues in the current budget projections is the “fiscal gap,” which is a “present value” measure of the long-term deficit. Slower growth in the labor force and lower saving rates will cause the economy to grow more slowly, which will cause revenues to grow more slowly and spending to be higher.