Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87751
Authors: 
Lassila, Jukka
Valkonen, Tarmo
Alho, Juha M.
Year of Publication: 
2011
Series/Report no.: 
ETLA Discussion Papers, The Research Institute of the Finnish Economy (ETLA) 1265
Abstract: 
All practical evaluations of fiscal sustainability that include the effects of population ageing must utilize demographic forecasts. It is well known that such forecasts are uncertain, and that has been taken into account in some studies by using stochastic population projections jointly with economic models. We develop this approach further by introducing regular demographic forecast revisions that are embedded in stochastic population projections. This allows us to separate systematically, in each demographic outcome and under different policy rules, the expected and the actualized effects of population ageing on public finances. We show that the likelihood of sustainability risks is significant, and that it would be wise to consider policies that reduce the likelihood of getting highly indebted. Furthermore, although demographic forecasts are uncertain, they seem to contain enough information to be useful in forward-looking policy rules.
Subjects: 
public finance
fiscal sustainability
stochastic population simulations
changing demographic forecasts
JEL: 
H30
H62
H63
J11
Document Type: 
Working Paper

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