- Edgardo Ruggiero, Peter Heller, Menachem Katz, Robert Feldman, Richard Hemming, Peter Kohnert, Ziba Farhadian, Donogh McDonald, Ahsan Mansur, and Bernard Nivollet
- Published Date:
- September 1986
|Baseline Economic and Demographic Scenario||Baseline Economic and “Greater Aging” Scenario||Pessimistic Economic and “Greater Aging” Scenario|
|Germany, Fed. Rep. of|
|Country||Education||Total Medical Expenditure||Personal medical expenditure||Pensions1||Unemployment Insurance||Other Social Expenditure||Total|
|Germany, Fed. Rep. of4||4.4||6.1||(6.1)||13.3||1.5||5.8||31.1|
|Country||Education||Medical Care||Pensions||Unemployment Insurance||Other||Subtotal||Tax Expenditure2||Total|
|Germany, Fed. Rep. of4||4.4||8.7||13.3||1.5||5.8||33.7||0.2||33.9|
|Germany, Fed. Rep. of||30.8||31.9||6.5||6.1||5.1||5.2||12.4||13.3|
|Social Expenditure||Expenditure Shares as a Percentage of GDP|
|Expenditure shares as a percentage of GDP||Income elasticity||Health||Education||Pensions|
|Germany, Fed. Rep. of||20.5||31.5||1.8||0.8||3.1||6.5||2.4||5.2||9.8||12.5|
|Baseline Scenario||“Greater Aging” Scenario|
|Life expectancy at birth: Males||(In number of years)|
|Germany, Fed. Rep. of||69.9||71.3||72.0||73.1||72.7||74.2||76.4|
|Life expectancy at birth: Females||(In number of years)|
|Germany, Fed. Rep. of||76.6||78.1||78.9||80.1||79.6||81.3||83.8|
|Germany, Fed. Rep. of||1.42||I.65||1.65||1.65||1.40||1.40||1.40|
|Baseline Scenario||“Greater Aging” Scenario|
|Share of population aged 65 and over|
|Germany, Fed. Rep. of||15.5||17.0||20.7||23.6||17.3||21.4||25.4|
|Aged 75 and over|
|Germany, Fed. Rep. of||6.0||7.0||8.3||10.0||7.0||8.5||11.0|
|Aged 0 to 14|
|Germany. Fed. Rep. of||16.9||16.5||14.4||14.2||15.0||12.6||11.8|
|Aged 15 to 64|
|Germany, Fed. Rep. of||67.6||66.5||64.9||62.2||67.7||66.0||62.8|
|Baseline Scenario||“Greater Aging-Scenario”|
|Overall dependency rate1|
|Germany, Fed. Rep. of||47.9||50.4||54.1||60.8||47.7||51.5||59.2|
|Elderly dependency rate2|
|Germany, Fed. Rep. of||22.9||25.6||31.9||37.9||25.6||32.4||40.4|
|Youth dependency rate3|
|Germany, Fed Rep. of||25.0||24.8||22.2||22.8||22.2||19.1||18.8|
|Share of the very old in the elderly population4|
|Germany, Fed. Rep. of||38.7||41.2||40.1||42.4||40.5||39.7||43.3|
|Population||(Millions of persons)|
|Germany, Fed. Rep. of||61.5||58.2||57.9||53.5||58.5||55.9||49.9|
|Germany, Fed. Rep. of|
|Share of Medical Expenditure Allocated to Age Group||Share of Population in Age Group|
|Country||0–14||15–64||65 and over||0–14||15–64||65 and over|
|Germany, Fed. Rep. of||9.7||57.1||33.1||15.5||67.6||16.9|
(As a percentage of GDP)1
|Country||Medical expenditure||Total social expenditure||Medical as percentage of total||Medical expenditure||Total social expenditure||Medical as percentage of total||Medical expenditure||Total social expenditure||Medical as percentageof total|
|Germany. Fed. Rep. of||3.1||20.5||15.1||6.6||32.6||20.2||6.5||31.5||20.6|
Some Illustrative Statistics on Medical Expenditure Per Capita by Age Group in Selected Group of Seven Countries
|Public and Private||Public|
|65 and over||145.7||45.4||88.8||314.3||136.1||28.2||50.2||240.1|
|75 and over||194.7||49.0||102.4||384.5||180.3||31.9||57.9||298.8|
|Index of Health Care Expenditure Per Capita||Hospital Expenditure Per Capita||Outpatient Expenditure Per Capita|
|75 and over||259.1||257.5||391.1||371.8||132.8||137.6|
|Age Group||Inpatient Care||Outpatient Care|
|70 and over||566.6||443.2|
|Age Group||Hospital and Community Services||Family Practitioner Services||Total||Personal Social Services|
|75 and over||905.9||135.3||1,041.2||323.5|
|0–18||19–64||65 and over||0–18||19–64||65 and over||0–18||19–64||65 and over|
|Other professional services||0.4||0.3||2.5||0.4||2.5||3.4||0.8||2.9||5.9|
|Drugs and drug sundries||0.3||0.6||2.7||5.0||8.5||14.7||5.3||9.2||17.4|
|Eyeglasses and appliances||—||0.1||1.1||0.9||2.7||2.2||0.9||2.8||3.3|
|Nursing home care||0.1||2.5||31.3||—||0.6||36.5||0.1||3.1||67.8|
|Other health services||1.7||1.9||1.7||0.2||1.0||0.2||2.0||3.0||1.9|
|Inpatient Care||Ambulatory Care||Pharmaceuticals|
|Copayment rate1||(As a percentage of total costs)|
|Germany, Fed. Rep. of||95||100||36||25||90||80|
|Coverage rate2||(As a percentage of population)|
|Germany, Fed. Rep. of||84||91||84||91||84||91|
|Country||Demographic effect||Coverage effect||Relative prices (1)||Average benefit (2)||Total (1) + (2)||Demographic effect||Coverage effect||Relative prices (1)||Average benefit (2)||Total (1) + (2)|
|Germany, Fed. Rep. of||1.0||0.5||2.3||5.0||7.4||—||—||0.7||2.1||2.8|
|Average Share of 65 and Over in the Population||Growth Rate of Average Real Medical Benefits|
|Germany, Fed. Rep. of||10.9||13.2||14.5||15.4||5.0||2.1|
|Country||Primary||First level||Second level||Total||Compulsory|
|Germany, Fed. Rep. of||4||6||3||13||9|
|Germany, Fed. Rep. of||72||85||100||120||148||206||191||1,536|
|Germany. Fed. Rep. of||126||96||100||109||125||126||99||5,044|
|Germany, Fed. Rep. of||67||94||100||124||181||256||298||3,690|
|Germany, Fed. Rep. of||46||66||100||141||190||392||461||1,223|
|Germany, Fed. Rep. of||107||93||100||114||139||166||156||11,494|
|Germany, Fed. Rep. of (6–18)||69||71||78||82||80|
|United Kingdom (11–17)||66||66||73||82||83|
|United States (13–17)||100||100||100||100||100|
|Germany, Fed. Rep. of (20–24)||6||9||13||25||28|
|United Kingdom (20–24)||9||12||14||19||20|
|United States (20–24)||32||40||49||58||57|
|In U.S. Dollars Converted at:||As a Percentage of:|
|Purchasing power parity rate||Market exchange rate||Per capita income||Average production worker wage|
|Germany, Fed. Rep. of||1,556||1,787||14.5||11.2|
|Germany, Fed. Rep. of||1,690||1,940||15.7||12.1|
|Germany, Fed. Rep. of||6,509||7,473||60.7||46.8|
Summary of Major Public Pension Programs
Old Age Security
This universal scheme pays a flat-rate pension to all residents aged 65 and over. Forty years of residence is required for a full pension. A Guaranteed Income Supplement, based upon income in the previous year, which is reduced by Can $1.00 a month for every Can $2.00 of other income, and an income-tested spouse allowance are also paid. Benefits are increased in line with consumer prices. The scheme is financed by general revenue.
Canada and Quebec Pension Plans
These are compulsory social insurance schemes that provide earnings-related pensions for employees and the self-employed. The retirement pension is equal to 25 percent of average contributory career earnings, above a minimum and up to a maximum. There is a low-earnings disregard. Pension age is 65. Disability pensions, survivor pensions, and a lump-sum death benefit are provided. Pensions are increased in line with consumer prices. The schemes are financed through contributions made by employees and employers on earnings between the minimum and maximum applied in determining benefits.
Basic Scheme (Regime general)
This social insurance scheme provides earnings-related pensions for wage earners. Pension age is 60, with a full pension requiring contributions for 37.5 years. The retirement pension is equal to 50 percent of average earnings in the ten highest years. Past earnings are revalued to reflect wage growth. There is an income-tested spouse supplement. Disability and survivor pensions are provided. Pensions are increased in line with average wages. The scheme is financed through earnings-related contributions made by employees and employers. There is a maximum earnings level for both benefit and contribution purposes.
There are compulsory schemes for agricultural workers, seamen, railway employees, public utility and other public employees, and the self-employed. The schemes provide earnings-related retirement pensions, with the benefit formula varying between schemes. Many pensioners receive more than one pension. Pension age varies between 60 and 65, depending upon the scheme. Disability and survivor pensions are also provided. Finance is provided by employees, employers, and general revenue.
Germany, Federal Republic of
Old Age, Survivors’, and Disability Insurance
An employee becomes eligible to receive retirement pension benefits at age 65 if be or she has been in the scheme for five years, and at age 63 with 35 years in the scheme. Under certain conditions, women, disabled persons, and the unemployed receive a retirement pension at age 60. The retirement pension and the general disability pension are equal: to 1.5 percent of “assessed” wages for each year in the scheme. The pension rate is reduced to 1 percent of assessed wages for each year in the scheme in the case of occupational disability pensions. “Assessed” wages have been revalued to reflect wage growth. Pensions have been increased in the past to reflect the growth in gross wages, although in recent years this link has been broken, and pensions are now in fact indexed to net wages. The scheme is financed through earnings-related employee and employer contributions, and a general government subsidy. There are minimum and maximum earnings levels for both benefit and contribution purposes.
Public Sector Employees’ Pension Scheme
This scheme pays a retirement pension of 75 percent of pensionable income to civil servants with over 35 years of coverage. The scheme is financed by general revenue. Other public sector employees receive pensions from the social insurance scheme, but they are brought up to a comparable level through additional pension schemes for public employees paid for by employers. Disability and survivor pensions are provided.
General Scheme (FPLD)
This social insurance scheme provides earnings-related pensions for employees in industry and commerce. The retirement pension is equal to 2 percent of the average of the last five years’ earnings for each year of scheme membership, up to a maximum of 80 percent of earnings, which are themselves subject to a maximum. Pension age is 60 for men and 55 for women with 15 years of coverage. A means-tested old-age benefit is available to those with very low pensions. Disability and survivor pensions are paid. Pensions are increased in line with a composite index reflecting changes in the cost of living and wages. The scheme is financed through earnings-related employee and employer contributions, subject to a minimum, and a lump-sum government subsidy.
There is a large number (over 50) of similar schemes for those not covered by the general scheme. Multiple pensions are common.
Employees Pension Insurance (Koosei)
This is part of a dual social insurance scheme that provides earnings-related pensions for employees. The retirement pension is equal to a fixed amount for each year of coverage, up to a maximum of 35, plus 1 percent of average revalued lifetime earnings. Pension age is 60 for men and 55 for women with 20 years in the scheme. Disability and survivor pensions are provided. Pensions are automatically adjusted to reflect changes in the cost of living. The scheme is financed by earnings-related contributions charged to employees and employers, subject to a minimum and a maximum, and 20 percent of the cost of the scheme is met by the Government of Japan.
National Pension Program (Kokumin)
This second part of a dual social insurance scheme provides pensions for residents not covered by another scheme. The retirement pension is equal to a fixed amount per year of contribution. Pension age is 65, a reduced pension being paid in the event of earlier retirement. Disability and survivor pensions are provided. Pensions are automatically adjusted to reflect changes in the cost of living. Individuals pay a fixed contribution, and one third of the cost of the scheme is met by the Government of Japan.
There are eight programs providing pensions for central and local government employees, other public sector employees, and agricultural workers, as well as a program providing worker disability insurance.
1985 Pension Reform Act
A basic benefit, common to all programs, has been introduced. Pension age is to be 65, but as an interim measure, basic benefits will be paid from age 60. Employees’ earnings-related pensions are to be limited to 68 percent of average revalued lifetime earnings. Without the reform, replacement rates would have risen to 83 percent. All replacement rates will reach 68 percent by 2010. In addition, pension provision for women and disabled people has been improved.
State Earnings-Related Pension Scheme (SERPS)
This social insurance scheme provides pensions for employees and the self-employed. The retirement pension consists of a basic flat-rate component, plus an earnings-related component equal to 1.25 percent of average revalued earnings in the best 20 years of a working life, beginning in April 1978. An earnings index is used for revaluation. There is an income tested allowance for needy pensioners. Pension age is 65 for men and 60 for women. Disability and survivor pensions are provided. Pensions are adjusted to reflect price changes. The scheme is financed by earnings-related contributions paid by employees and employers and by a government contribution. A minimum and a maximum earnings level applies in the determination of both contributions and benefits. Employers can contract out of the earnings-related component if they provide similar pensions through a private scheme.
This scheme began in April 1961 and was wound up in March 1975. It pays small amounts of pension based upon earnings-related contributions made over this period.
1985 White Paper
SERPS is to be reformed in the following ways: earnings-related pensions are to be limited to 20 percent of average revalued lifetime earnings; pension provision for widows and widowers has been reduced; and contracting-out terms have been changed.
Old Age, Survivors’, and Disability Insurance (OASDI)
This social insurance scheme provides pensions for most gainfully occupied persons. The retirement pension is based on covered earnings after 1950, with a low earnings disregard. The pension formula has undergone change, the intention being to bring about a phased reduction in the replacement rate from its 1981 peak average of 54 percent to 45 percent by 1990. A dependent’s allowance is paid, as well as a means-tested allowance for the needy. Pension age is 65. Retirement age is to be increased from 65 to 67 between 2000 and 2025. Pensions are increased in line with the cost of living. The scheme is financed through earnings-related contributions paid by employees, a payroll tax, and a government contribution. There is a maximum earnings level for pension purposes.
There are separate programs for federal government and military employees, and for veterans. There is also a Supplementary Security Income program to help those with very low incomes.
Average Benefit Levels
Table 33 provides estimates on the average payment under the various public pension schemes prevailing in the seven major industrial countries as of 1980. Given the variety of benefits and the different scales at which they are paid, reliance has been placed on a measure of average expenditures, either per pension recipient or per person over age 65. Such comparisons are crude, as systems differ in the comprehensiveness of benefits paid to different classes of beneficiaries (the retired, spouses of retirees, survivors’ benefits to widows and dependent children, the disabled, veterans, early retirees), as to whether such benefits are taxable, and in the relative weight of income-related and flat-rate benefits. The average is also affected by the number of recipients in the different groups.
|In U.S. Dollars Converted at:||As a Percentage of:|
|Purchasing power parity rate||Market exchange rate||Per capita income||Average production worker wage|
|Basic pension and Canada Pension Plan||2,969||2,969||28.6||21.4|
|Average pension payment per citizen over age 652||3,702||3,702||35.7||26.7|
|All wage earners||7,708||8,390||73.1||72.6|
|Of which: Regime general||(6,255)||(6,809)||(59.4)||(58.9)|
|Wage and nonwage earners||6,265||6,820||59.4||59.0|
|Germany, Fed. Rep. of|
|Average of male and female|
|Workers (non-civil servants)||5,916||6,792||55.1||42.5|
|Male “blue collar” workers||7,182||8,245||66.9||51.6|
|Male “white collar” workers||8,783||10,083||81.8||63.1|
|Average pension of FPLD3||3,533||2,869||44.9||30.3|
|Average pension: all schemes4||3,290||2,672||41.8||28.3|
|Average pension expenditure per citizen over age 60||5,831||4,735||74.1||50.1|
|Average Koosei pension||2,975||3,547||35.7||28.8|
|Average Kokumin pension||1,062||1,266||12.7||10.3|
|Average for all schemes||2,107||2,512||25.3||20.4|
|Average flat-rate pension|
|Average retirement benefit (OASDI)||4,097||4,097||35.4||27.3|
|Average spouse benefit||2,064||2,064||17.9||13.8|
These averages have been stated both in terms of U.S. dollars (using both the current exchange rate and the purchasing power parity rate71) and relative to the average wage of a production worker (APW) and to the per capita income prevailing in 1980. The higher relative ratio of pension expenditure to GDP in France, the Federal Republic of Germany, and Italy in part appears to be influenced by the higher average pension benefits prevailing in these countries. This is clearly the case in France and the Federal Republic of Germany. In Italy, the average pension in any given program is not any larger than in the other countries, but multiple pensions per recipient appear to characterize the Italian social insurance system. The average pension expenditure per citizen over age 60 is substantially higher than the average pension in any given scheme; while the former number undoubtedly overestimates the average pension actually received by individuals over age 60 (to the extent that some expenditures go to dependents or individuals below that age), it offers a better measure of the actual pension level. The level of pensions in these three countries also reflects their greater reliance on public pension schemes as a source of income support for the elderly.
Canada, the United Kingdom, and the United States are in the next strata in terms of average pension benefits per recipient, relative to per capita income or the wage of an average production worker. Japan appears to have the lowest average pension expenditures within this group of countries because of the recent introduction and relative immaturity of Japan’s pension systems.72 Private pensions do not play as important a role, although many permanent employees still receive (though in diminishing numbers) a lump-sum payment at the time of retirement. The elderly in Japan appear to rely principally on continued employment, savings, or family support.
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United Kingdom, H. M. Treasury, Reform of Social Security: Programme for Action (London:H. M. Stationery Office Cmnd, 9691, 1985).
United States, Report of the National Commission on Social Security Reform, Chairman, Alan Greenspan (Washington:Government Printing Office, 1983).
United States, Board of Trustees of the OASDI Trust Funds, 1984 Annual Report of the Board of Trustees of the Old-Age, Survivors Insurance and Disability Insurance Trust Funds (Washington:Government Printing Office, 1984).
United States, U.S. Congress, Senate, Special Committee on Aging, Long-Term Care in Western Europe and Canada: Implications for the United States, 98th Congress, 2nd Session, July 1984 (Washington, Government Printing Office, 1984).
United States, U.S. Department of Education, Digest of Education Statistics, 1982, compiled byW. VanceGrant and Leo J.Eiden, National Center for Education Statistics (Washington:Government Printing Office, 1984),
United States, U.S. Department of Education, U.S. Department of Health and Human Services, Social Security Programs Throughout the World–1983, Research Report No. 59 (Washington:Government Printing Office, 1984).
United States, U.S. Department of Education, Board of Trustees of the OASDI Trust Funds, 1985 Annual Report of the Old-Age, Survivors Insurance and Disability Insurance Trust Funds (Washington:Government Printing Office, 1985).
United States, U.S. Department of Education, Council of Economic Advisers, Economic Report of the President, Chapter 4: “Health Status and Medical Care” (Washington:Government Printing Office, 1985), pp. 129–86.
United States, U.S. Department of Education, Executive Office of the President. Office of Management and Budget, Special Analyses: Budget of the United States Government, Fiscal Year 1985 (Washington:Government Printing Office, 1985).
United States, U.S. Department of Education, U.S. Congress, Congressional Budget Office, Physician Reimbursement Under Medicare: Options for Change (Washington:Congressional Budget Office, 1986).
“The Changing Cyclical Responsiveness of Wage Inflation,” Brookings Papers on Economic Activity: I (1976), The Brookings Institution (Washington), pp. 115–59.
Social Security Area Population Projection, 1984, Actuarial Study No. 92 (Baltimore:Office of the Actuary. U.S. Social Security Administration, 1984).
Occasional Papers of the International Monetary Fund*
2. Economic Stabilization and Growth in Portugal, by Hans O. Schmitt, 1981.
5. Trade Policy Developments in Industrial Countries, by S.J. Anjaria, Z. Iqbal, L.L. Perez, and W.S. Tseng, 1981.
6. The Multilateral System of Payments: Keynes, Convertibility, and the International Monetary Fund’s Articles of Agreement, by Joseph Gold, 1981.
7. International Capital Markets: Recent Developments and Short-Term Prospects, 1981, by a Staff Team Headed by Richard C. Williams, with G.G. Johnson, 1981.
8. Taxation in Sub-Saharan Africa. Part 1: Tax Policy and Administration in Sub-Saharan Africa, by Carlos A. Aguirre, Peter S. Griffith, and M. Zahtii Yikelik. Part II: A Statistical Evaluation of Taxation in Sub-Saharan Africa, by Vito Tanzi, 1981.
9. World Economic Outlook: A Survey by the Staff of the International Monetary Fund, 1982.
10. International Comparisons of Government Expenditure, by Alan A. Tait and Peter S. Heller, 1982.
11. Payments Arrangements and the Expansion of Trade in Eastern and Southern Africa, by Shailendra J. Anjaria, Sena Eken, and John F. Laker, 1982.
12. Effects of Slowdown in Industrial Countries on Growth in Non-Oil Developing Countries, by Morris Goldstein and Mohsin S. Khan, 1982.
13. Currency Convertibility in the Economic Community of West African States, by John B. McLenaghan, Saleh M. Nsouli, and Klaus-Walter Riechel, 1982.
14. International Capital Markets: Developments and Prospects, 1982, by a Staff Team Headed by Richard C. Williams, with G.G. Johnson, 1982.
15. Hungary: An Economic Survey, by a Staff Team Headed by Patrick de Fontenay, 1982.
16. Developments in International trade Policy, by S.J. Anjaria, Z, lqbal, N. Kirmani, and L.L. Perez, 1982.
17. Aspects of the International Banking Safety Net, by G.G. Johnson, with Richard K. Abrams, 1983.
18. Oil Exporters’ Economic Development in an Interdependent World, by Jahangir Amuzegar, 1983.
19. The European Monetary System: The Experience, 1979–82, by Horst Ungerer, with Owen Evans and Peter Nyberg, 1983.
20. Alternatives to the Central Bank in the Developing World, by Charles Collyns, 1983.
22. Interest Rate Policies in Developing Countries: A Study by the Research Department of the International Monetary Fund, 1983.
23. International Capital Markets: Developments and Prospects, 1983, by Richard Williams, Peter Keller, John Lipsky, and Donald Mathieson, 1983.
24. Government Employment and Pay: Some International Comparisons, by Peter S. Heller and Alan A. Tait, 1983. Revised 1984.
25. Recent Multilateral Debt Restructurings with Official and Bank Creditors, by a Staff Team Headed by E. Brau and R.C. Williams, with P.M. Keller and M. Nowak, 1983.
26. The Fund, Commercial Banks, and Member Countries, by Paul Mentré, 1984.
27. World Economic Outlook: A Survey by the Staff of the International Monetary Fund, 1984.
28. Exchange Rate Volatility and World Trade: A Study by the Research Department of the International Monetary Fund, 1984.
29. Issues in the Assessment of the Exchange Rates of Industrial Countries: A Study by the Research Department of the International Monetary Fund. 1984
30. The Exchange Rate System—Lessons of the Past and Options for the Future: A Study by the Research Department of the International Monetary Fund. 1984
31. International Capital Markets: Developments and Prospects, 1984, by Maxwell Watson, Peter Keller, and Donald Mathieson, 1984.
32. World Economic Outlook, September 1984: Revised Projections by the Staff of the International Monetary Fund, 1984.
33. Foreign Private Investment in Developing Countries: A Study by the Research Department of the International Monetary Fund, 1985.
34. Adjustment Programs in Africa: The Recent Experience, by Justin B. Zulu and Saleh M. Nsouli, 1985.
35. The West African Monetary Union: An Analytical Review, by Rattan J. Bhatia, 1985.
36. Formulation of Exchange Rate Policies in Adjustment Programs, by a Staff Team Headed by G.G. Johnson, 1985.
37. Export Credit Cover Policies and Payments Difficulties, by Eduard H. Brau and Chanpen Puckahtikom, 1985.
38. Trade Policy Issues and Developments, by Shailendra J. Anjaria, Naheed Kirmani, and Arne B. Petersen, 1985.
39. A Case of Successful Adjustment: Korea’s Experience During 1980–84, by Bijan B. Aghevii and Jorge Marquez-Ruarte, 1985.
40. Recent Developments in External Debt Restructuring, by K. Burke Dillon, C. Maxwell Watson, G. Russell Kincaid, and Chanpen Puckahtikom, 1985.
41. Fund-Supported Adjustment Programs and Economic Growth, by Mohsin S. Khan and Malcolm D. Knight, 1985.
42. Global Effects of Fund-Supported Adjustment Programs, by Morris Goldstein, 1986.
43. International Capital Markets: Developments and Prospects, by Maxwell Watson, Donald Mathieson, Russell Kincaid, and Eliot Kalter, 1986.
44. A Review of the Fiscal Impulse Measure, by Peter S. Heller, Richard D. Haas, and Ahsan H. Mansur, 1986.
45. Switzerland’s Role as an International Financial Center, by Benedicte Vibe Christensen, 1986.
46. Fund-Supported Programs, Fiscal Policy, and Income Distribution: A Study by the Fiscal Affairs Department of the International Monetary Fund, 1986.
47. Aging and Social Expenditure in the Major Industrial Countries, 1980–2025, by Peter S. Heller, Richard Hemming, Peter W. Kohnert, and a Staff Team from the Fiscal Affairs Department, 1986.
International Monetary Fund, Washington, D.C. 20431, U.S.A.
Telephone number 202 623-7430
Cable address: Enterfund
Most studies in the Group of Seven industrial countries have focused on the effects of aging on the pension system and occasionally on the cost of medical insurance programs. Studies on the evolution of total social expenditure have been undertaken in some of the smaller industrial countries (e.g., Australia: Social Welfare Policy Secretarial (1984): the Netherlands: Goudriaan and others (1984): and Ireland: National Economic and Social Council (1984). Also, see Rosa (1982) and United Kingdom (1985).
This is not only an industrial country problem. It may also emerge in developing countries seeking to limit their population growth. A recent article in the China Daily (“Opinion: An Appeal to Revise Old Age Insurance” (1985)) notes that the proportion of China’s population in the age group 60 and over is expected to double every 30 years, reaching 15 percent by 2010 and 30 percent by 2040. “The proportion of the retired population … to the labouring population was 14 percent in 1980. It … will reach 19 percent in 2000 and even as high as 54 percent by 2040.”
As a survey paper, this study will not provide detailed institutional descriptions of the individual countries. Such discussions are presented in the following country studies by Fund staff members:
Robert Alan Feldman, “Japan: Outlook for Social Expenditure, 1980–2025” (unpublished, July 1985).
Menachem Katz, “The Future of Expenditure on Social Programs in Canada, 1980–2025” (unpublished, August 1985).
Peter Kohnert, “Social Expenditure Developments in the Federal Republic of Germany, 1980–2025” (unpublished, August 1985).
Ahsan Mansur, “United Kingdom: Developments in Public Social Expenditure, 1980–2025” (unpublished, July 1985).
Donogh McDonald, “United States: Outlook for Social Expenditure, 1980–2025” (unpublished, August 1985).
Bernard Nivollet. “Scenarios on Social Expenditure T’rends in France.1980–2025” (unpublished, July 1985).
Edgardo Ruggiero, “Social Expenditure Developments in Italy. 1980–2025” (unpublished, July 1985).
See also Ziba Farhadian, “Public Expenditure on Education” (unpublished, February 1985), for details on the education sector.
Several of the countries in this study use gross national product (GNP) as the principal measure of output (notably Canada, the Federal Republic of Germany, the United Kingdom, and the United States). In this study, all ratios to output for these countries have been calculated and expressed in the tables with respect to GNP. However, GDP is the term used in the text for references to total output.
The fertility rate is based on the average number of live births to a woman over her reproductive lifetime. A fertility rate of approximately 2.1 is necessary for a nation, over time and with no net immigration, to reproduce itself. As the results of this study indicate, fertility rates below 2.1 can prevail for a long time before the rate of growth in the population actually turns negative (given the past fertility rates and the existing age structure of the population).
The projections assume an underlying baseline economic scenario, specified principally in terms of the rate of growth of productivity and the assumed unemployment rate. An alternative, more pessimistic economic scenario is also evaluated in conjunction with the “greater aging.” demographic scenario. Given that the underlying model assumes a direct link between the growth in real benefit levels and that of productivity, the economic scenario chosen has its principal impact on expenditure on unemployment compensation. See Chapter II for a fuller discussion of these issues.
It should be noted that the existing payroll tax presently finances only a portion of government social expenditure, 1980–2000
The elderly dependency rate is defined as the ratio of the population aged 65 and over to the potential working-age population (aged 15–64), The youth dependency rate is the ratio of the population under age 15 to the same denominator.
In the baseline scenario, the elderly dependency rate rises from 35 percent by 2025 to 38 percent by 2030 and 40 percent by 2040. In the “greater aging” scenario, it rises from 41 percent by 2025 to 52 percent by 2040.
The share of the elderly is projected to peak at almost 22 percent by 2035, compared with over 19 percent by 2025, with the elderly dependency rate rising to 36 percent, compared with 31 percent by 2025.
This statement is subject to the qualification that the growth of employment is not fully independent of productivity growth. In the projections, different productivity trends are associated with different long-term unemployment rates that change the size of the active labor force to some extent. But the influence on expenditure as a share of GDP turns out to be minimal.
There is the associated issue of whether pension benefits should be adjusted in line with consumer prices. It has been argued that it would be more reasonable to adjust pension benefits in line with real net wages (e.g., in situations where pensioners should not be any more insulated from inflation than other strata of the labor force). Similarly, to the extent that net real wages decline as a result of the need to increase tax rates, should pension benefits be adjusted in line with gross wages, again improving the relative income position of pensioners?
This could also affect tax reform efforts: for instance, the numerous proposals for expenditure taxes that favor current savings but tax the expenditure from accumulated savings.
These derive principally from unpublished work of the Organization for Economic Cooperation and Development (OECD).
OECD, Soda! Expenditure: 1960–1990. Problems of Growth and Control (1985).
This study and that of the OECD are not based on the same data. However, the differences are not large for the base year, nor do they exhibit any discernible pattern. This is not surprising. This study relies upon official government sources and the definitions of expenditure by category adopted by each. The OECD imposes a consistent accounting framework on these same data. This requires some redefinition and recategorization of expenditures in ways that differ among countries (Table 17).
The “relevant” population groups used to estimate the demographic effect for the different sectors were: (1) health and medical care: the total population: (2) pensions: the population aged 65 and over; (3) unemployment compensation: the number of unemployed: and (4) education: the population aged 0–24.
In the OECD analysis, the growth in average real benefits is computed as a residual. As such, it is a more complicated concept than these descriptions convey. For example, the growth of average real benefits in medical care and education reflect changes in the age composition of the “relevant” population group. In the case of medical care, where the relevant population group is the total population, an aging of the population would be characterized as a change in average benefits rather than as a demographic effect: in education, a shift in the student population toward a greater number of children in the higher age groups would similarly be characterized as a growth in average benefits rather than a demographic effect. In the present study, these shifts in the age composition of beneficiary groups are included within the demographic effects and are treated separately from increases in average benefits: moreover, demographic effects are estimated by taking into account as much as possible the age-specific expenditure patterns within the countries.
This is true in an ex post accounting sense. It is not being asserted that, historically, the growth of real benefits and GDP has been independent of the underlyng inflation rate.
See Beck (1981) for a discussion of the impact of unbalanced productivity growth on public expenditure growth in the major industrial countries. A large part of social expenditure takes the form of pure transfers. Nevertheless, if the volume of expenditure on transfers (normally measured by deflating nominal expenditure by the consumer price index) grows at the same rate as real GDP, the ratio of nominal social expenditure to nominal GDP can still increase. This tendency is also referred to as a relative price effect.
All the expenditure projections that follow are therefore defined in relation to general price inflation. This expenditure concept is referred to as “real” expenditure. This terminology contrasts with that used by the OECD, which treats real expenditure as a pure volume concept. What is referred to here as real expenditure” is termed “deflated expenditure” in OECD (1985).
The fact that they are out of line should not be taken to imply that they are any less reasonable. Indeed, the reasonableness of any projection of the unemployment rate 40 years from now is almost impossible to judge.
Unlike the other countries, for the United Kingdom an assumption is made about the future growth rate of real GDP, so that the productivity assumptions are in fact endogenous, given projected employment growth (Mansur (1985)).
This serves to emphasize the fact that the study presents expenditure projections rather than predictions. In the latter case, an attempt would be made to model the impact of policy responses to increasing expenditure (both those designed to control expenditure growth and those designed to increase the capacity of the economy to finance it).
The official projections were drawn from the following sources: Canada, Economic Council of Canada (1979); France, Institut National de la Statistique et des Etudes Economiques (1978); Germany (Federal Republic), Bundesregierung (1981; Italy Istituto di Ricerche sulla Popolazione (1984): Japan, Institute of Population Problems (1982); United Kingdom, Office of Population Censuses and Surveys (1984); Wade (1984); and United States, Board of Trustees of the OASDI Trust Funds (1985). In the case of Japan, the official projections of the share of the elderly are bounded by the two alternative demographic scenarios of this study.
The fertility rate is a measure of the total number of children that would be born to an average woman during her fertile years, if the age-specific fertility rates experienced during the year of measurement continue throughout her fertile life. The fertility rate reflects the influence of the proportion of the population married and the age of marriage, as well as the numerous socioeconomic factors which affect the decision of a woman to bear children (inter alia, the perceived economic cost of bearing children). For the industrial countries (with low rates of infant mortality), a fertility rate of about 2.1 is, in principle, required for a closed population just to reproduce itself over time.
A slight decline is projected for France; in part, this indicates the extent to which projections can quickly become dated. The French baseline scenario was based on 1978 projections made by the Institut National de la Statistique et des Etudes Economiques (INSEE). The lack of optimism largely reflects the failure of Life expectancy to improve in France in recent years, reflecting high mortality from alcohol and tobacco-related illnesses.
This is slightly higher than the recently issued demographic projections for the United Kingdom (Office of Population Censuses and Surveys, 1984), which assume emigration of approximately 19,000 a year in 1985, declining to 9,000 a year in 1990. The “greater aging” scenario assumes no net migration over the period.
Since countries differ in both the likely ages of employment and retirement, no age grouping is fully appropriate across countries to define uniformly the potential working-age group.
For the United States, the “greater aging” scenario reflects the official “pessimistic” scenario of the Social Security Administration, which suggests a decline in the fertility rate from 1.86 to 1.6 over the next 25 years.
This is an improvement in life expectancy of approximately 0.13–0.2 percent a year over the period 1980–2025, compared with an improvement of 0.07–0.1 percent in the baseline scenario.
Expenditure on unemployment compensation programs has grown faster, especially in Europe. The extent, timing, and sources of this growth are described in Chapter VII.
In Canada and the United Kingdom, all persons over pension age is assumed to be retired.
Defining immaturity in terms of the pensions received by newly retired pensioners ignores the impact of immaturity as reflected in the pensions received by older pensioners. Only if maturity is defined in terms of the pensions paid on retirement to all pensioners would this be taken into account. A program will be mature when every retired person has accrued the maximum potential pension possible under the scheme, given his or her earnings.
The projections for the United States are drawn from United States, Board of Trustees of the OASDI Trust Funds (1985).
This assumption is fairly arbitrary, as there are no official projections for the public pension system as a whole. However, this assumption produces the intended results of the 1985 Pension Reform Act discussed further in the text and Appendix II.
The official projections are contained in United Kingdom. National Insurance Fund Long-Term Financial Estimates (1982). The recent reforms to SERPS are described in the text and Appendix II.
See Canada, Economic Council of Canada (1979). Official projections assume that pensions will increase with earnings; although this is not the current practice, such an assumption provides for an increase in real pension levels. In the baseline economic scenario for Canada, the expenditure ratio in 2025 would rise from 4.3 percent in the current projection to 6.5 percent.
This compensates for a rapid rise in the replacement rate through the mid–1970s because of a flaw in the indexation mechanism introduced in the 1972 Social Security Amendment.
United Kingdom, Reform of Social Security: Programme for Action (1985).
For a fuller discussion of the alternative methods of social security financing, see International Labor Office (1984).
See Saunders and Klau (1985) for a review of the theoretical and empirical literature dealing with this subject.
One should emphasize that estimating the true price deflator in the medical sector is likely to be subject to considerable error, particularly in light of the rapidity of technological progress in the practice of medicine. There are also likely to be significant differences across countries in the methodology used in estimating this deflator.
It is tempting to characterize this as a U.S. phenomenon. It is not. For example, a recent expert on the French medical system in the late 1970s noted that “medical care became increasingly technically oriented and the hospital-based physicians had neither utility criteria nor financial incentives to seek the least costly procedures in diagnosis or treatment” (Laurois, cited in Godt (1985), p. 160).
In most cases, such estimates were directly available from country sources. In other cases (notably France, Italy, and Japan), estimates were available on the age-specific intensity of the use of particular types of medical services. Based on the average cost of a given medical service, an estimate could then indirectly be made for the average expenditure on that type of service, assuming that the average cost per case of individuals is invariant across age groups (see Table 25). In the countries for which data are available, the latter assumption does not appear to be far out of line.
In calculating the pure demographic effect, output would be adjusted only to take account of demographically induced changes in the size of the labor force and the unemployment rate. In the United States, economic effects on the labor force participation rate are also included in the various scenarios.
However, the growth in the medical costs variable assumed for the United Kingdom does take account of historical cost control efforts.
Such expenditures do not represent a significant share of total medical care expenditure and are likely to be influenced by different underlying pressures.
This result reflects past behavior and does not fully take account of the effects of the cash-limits approach to the budgeting of medical expenditure in the United Kingdom.
For reference, if average medical expenditure per capita grew at the rate actually experienced during 1975–81, and assuming the prospective productivity growth rates indicated in Table 7, the change in the ratio of government medical expenditure to GDP would be dramatic in same countries, as indicated below:
|Germany, Fed. Rep. of||6.1||10.9||United States||3.3||16.9|
For an interesting discussion of recent policies to contain reimbursements to physicians in Canada, the Federal Republic of Germany, and the United States, see United States, U.S. Congress, Congressional Budget Office (1986).
See United States, Council of Economic Advisers (1985).
For a fuller discussion of alternative approaches to the prospective payment system, see United States, Council of Economic Advisers (1985), pp. 149–50.
“Enrollee Health Costs Down 10 Percent.” See Yomiuri Shimbun (1985).
Mapelli (1984) provides a discussion of the National Health System reform.
The impact on costs of proposals to fund hospice care under government medical insurance programs is uncertain. Will the effects of substitution of a less expensive form of care be offset by the possibility of a sharp increase in demand for this service from families and individuals that previously had not been receiving benefits for this type of care?
For a detailed study of the arrangements for caring for the very elderly in the industrial countries, see United States, U.S. Congress, Senate (1984).
The only country not providing earnings-related benefits is the United Kingdom, although it did so between 1974 and 1981. These benefits were discontinued in 1982.
Roberti (1984) provides a detailed discussion of the underlying changes in expenditure on unemployment compensation programs in the seven major industrial countries.
See Chapter II for details of the assumptions made for each country.
However, as discussed in Chapter II, there is an issue as to whether tax expenditures can be equated with direct expenditures, since the objectives of the two types of expenditure might be quite different. As Owens (1983, p. 176) points out, it has to be decided “whether a particular tax provision is a tax expenditure, and therefore a substitute for an expenditure provision, or an integral part of the income tax system designed to measure taxable capacity.” It is probably fair to say that child tax allowances were originally put in place to fulfill fiscal objectives, but as the coverage of the income tax has extended further down the income scale, they have been increasingly important as instruments of social policy. Detailed descriptions of the total cash assistance to families with dependent children in a number of countries, including most of the seven major industrial countries, can be found in Kahn and Kamerrnan (1983).
The “prices” assumption in Canada reflects existing policy. This policy exists also in the United Kingdom, although a more generous provision is built into the projections.
The programs included are indicated as follows:
(1) Canada: expenditure on the Canada Assistance Plan, sickness, maternity, veterans’ affairs, and Indian affairs.
(2) France: maternity, training, and work-related accident benefits, and administrative costs. In the baseline case the projections are to 2020 only.
(3) Germany, Federal Republic of: welfare and social services, special compensations (including veterans’ payments, land-loss compensation, and political compensation), and workmen’s compensation benefits.
(4) Italy: family and workmen’s compensation benefits.
(5) Japan: disability and welfare benefits.
(6) United Kingdom: disability, sickness, widows’ and supplementary benefits, and administrative costs.
(7) United States: expenditure on food and nutrition programs and low-income programs (e.g., aid to families with dependent children) administered by the Department of Health and Human Services.
Exchange rates in 1975 are adjusted to 1980, based on relative movements in the consumer price index between a given country and the United States.
However, for the hypothetical worker enrolled for an average working life at average wages, the benefits under the Japanese system would be comparable to those received by a hypothetical average worker in other industrial countries.
Numbers 1, 3, 4, and 21 of the Occasional Paper series are out of print.