Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154618
Editors: 
Dieppe, Alistair
Guarda, Paolo
Year of Publication: 
2015
Series/Report no.: 
ECB Occasional Paper 165
Abstract: 
This paper analyses the challenges that high public debt and ageing populations pose to medium-term growth. First, macroeconometric model simulations suggest that medium-term growth can benefit from credible fiscal consolidation, partly through reductions in sovereign risk premia. Second, a disaggregated growth accounting exercise suggests that the impact of population ageing on medium-term growth can be mitigated by structural reforms boosting labour force participation. Finally, general equilibrium models suggest that pay-as-you-go public pension systems will require reforms combining lower benefits, a later retirement age and higher social contributions. These findings suggest several policy recommendations: (a) “fiscal space” should be preserved to counter adverse shocks, (b) credible fiscal plans can benefit growth through the sovereign risk channel, (c) the demographic transition increases the need for improved fiscal policy coordination and more flexible labour migration policies, and (d) fiscal consolidation should avoid perverse incentive effects that could lower labour supply and medium-term growth.
Subjects: 
ageing
fiscal consolidation
medium-term growth
pensions
sovereign debt
structural reforms
JEL: 
E17
E23
E24
E62
F47
J1
Document Type: 
Research Report

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