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Mr. Paulo Drummond, Mr. Vimal V Thakoor, Shu Yu, and Mr. Paolo Mauro

Africa will account for 80 percent of the projected 4 billion increase in the global population by 2100. The accompanying increase in its working age population creates a window of opportunity, which if properly harnessed, can translate into higher growth and yield a demographic dividend. We quantify the potential demographic dividend based on the experience of other regions. The dividend will vary across countries, depending on such factors as the initial working age population as well as the speed and magnitude of demographic transition. It will be critical to ensure that the right supportive policies, including those fostering human capital accumulation and job creation, are in place to translate this opportunity into concrete economic growth.

Peter S. Heller

The paper assesses the government expenditure effects from changing demographics in the Asian “Tiger” economies through 2050. With some exceptions, their limited social insurance commitments initially suggest that aging populations may not adversely affect fiscal balances. Yet for all the Tigers, changing illness patterns and medical modernization may combine with demographics to intensify budgetary pressures. The paper notes the implications of the Tigers’ reliance on private sector pension and medical insurance systems; the need for an active public role; and the complications for fiscal analysis when private sector instruments are used, in a mandatory way, as public policy instruments.

Assaf Razin, Efraim Sadka, and Mr. Phillip L Swagel

Data for the United States and countries in Western Europe indicate a negative correlation between the dependency ratio and both labor tax rates and the generosity of social transfers, after controlling for other factors that influence the size of the welfare state. This is despite the increased political clout of the dependent population implied by the aging of the population. This paper develops a model of intra-and inter-generational transfers and human capital formation which addresses this seeming puzzle. We show that with democratic voting, a higher dependency ratio can lead to lower taxes or less generous social transfers.