Impact of Demographic Change upon the Sustainability of Fiscal Policy

YoungGak Kim (), Myoung Chul Kim () and Seongyong Im ()
Additional contact information
Myoung Chul Kim: Monetary Policy & Markets Department, The Bank of Korea
Seongyong Im: Monetary Policy & Markets Department, The Bank of Korea

No 2014-20, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper analyzes the impact of demographic change on the sustainability of fiscal policy. Firstly, we study the main causes of the deterioration of Japanese government fiscal conditions from the demographic point of view. Next, we investigate the impact of Korean population aging on the long-term fiscal conditions using the method of the forward looking measure of Generational Accounting. Most of the deterioration in the fiscal situation of the Japanese government since 1990 can be explained by an increase in social security costs related with population aging and a decrease in tax revenue caused by lackluster economy. Considering the rapid population aging, Korean government's fiscal condition, evaluated to be very sound currently, could also deteriorate soon without counteracting preemptively. The results of Korean Generational Accounting show that the social security related expenditures are main drives for the deterioration of long-term fiscal condition. In addition, as shown by the case of Japan, the effect of the decreased tax revenue could be greater than that of increased expenditure. The policy for improving the tax revenue through economic growth is also very important for the sustainability of government finance.

Keywords: Demographic structure; Generational Accounting; Social security costs (search for similar items in EconPapers)
JEL-codes: E24 H50 J10 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-07-24
References: Add references at CitEc
Citations:

Downloads: (external link)
http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2014-20.pdf Working Paper, 2014 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1420

Access Statistics for this paper

More papers in Working Papers from Economic Research Institute, Bank of Korea Contact information at EDIRC.
Bibliographic data for series maintained by Economic Research Institute ().