7 Concluding remarks
Population ageing has the potential to become the single biggest economic and policy issue of the next fifty years. As such future policy needs to be developed within a framework that recognises the potential ramifications of population ageing. This paper highlights some of the key issues that need to be addressed within such a framework, but it is by no means comprehensive. It is evident that the economics of population ageing is an area still replete with conjecture that requires further investigation.
The economic analysis of population ageing has two branches: one macroeconomic where we seek to elucidate the impact on the growth and productivity of the economy stemming from changing patterns of saving and investment, capital flows and changes in the labour market. The second or microeconomic branch, considers the income, consumption and saving of individuals over their lifecycle in the face of reduced fertility and greater longevity.
In seeking to better understand the economics of population ageing we must set the boundaries of our analysis within a demographic framework. This requires first identifying the range of demographic issues that make up population ageing. In section three spatial and behavioural aspects of labour force participation were raised, and these require further analysis. In particular the declining retirement age is of concern and it highlights the importance of examining the behavioural effects of policy within the contexts of population ageing.
Of course predicting and assessing the effects of population ageing on policy is problematic and carries with it a great degree of uncertainty. This is particularly true for assessing the fiscal implications of population ageing. The impact of population ageing on government spending such as expenditure on health care is largely an unknown and all that we can do is to focus our enquiry on the factors that drive demand for public resources.
In some instances however there is scope to evaluate fiscal impacts within fairly robust frameworks. One such case is the effects of population ageing on government revenue. In particular robust methodologies, such as microsimulation models, exist within which to examine whether or not the tax base will be eroded in the absence of a capital gains tax[32]. Furthermore, the prediction of future fiscal impacts will be enhanced if the analytical framework used includes stochastic elements.
In particular the use of stochastic budget forecasts could offer the benefit of being able to take account of the inherent uncertainty in our forecasts and explore the implications for fiscal outcomes. This can add to the current scenario based approach because it allows us to estimate and interpret the size of errors surrounding our forecasts and to quantify the uncertainty that surrounds future economic impacts of population ageing[33].
Assessing long run impacts requires understanding the broader environment within which economic and political activity takes place. This paper has raised the role that political economy might have on future government expenditure, but has not explained other potential political economy or social aspects of population ageing. Nevertheless one should not underestimate their importance.
The potential effects of population ageing on capital markets is an area which will require close monitoring. As populations in different regions age at differential rates, it is to be expected that imbalances in national or regional savings and investment will generate capital flows and changes in international asset prices. New, because of its small size, will not have any significant effect on these flows but will be subject to the influence of changes in process in international markets.
In the case of domestic capital markets the issue requiring the most attention is that of asset prices. The potential for retirement wealth dilution if asset prices fall carries significant implications for many areas of policy and as such deserves fuller investigation.
The effect that population ageing has on capital markets will almost certainly feed through to long run economic; this is indicative of the pervasiveness of the economic consequences of population ageing. Although focussing research upon a single economic issue is helpful if only for brevity’s sake, any future research should necessarily respect that fact that the issues surrounding the economics of population ageing are broadly related. This includes recognising that although macro-level data conveniently summarises general trends, it does not allow us to understand behavioural responses to demographic changes. Indeed expanding our understanding of behavioural responses to demographic change should be a priority in further research.
