Amaglobeli, David, and Wei Shi. 2016. “How to Assess Fiscal Implications of Demographic Shifts: A granular Approach,” How-to notes 2, Fiscal Affairs Department, Washington, DC.
Clements, Benedict, Kamil Dybczak, Vitor Gaspar, Sanjeev Gupta, and Mauricio Soto. 2015. “The Fiscal Consequence of Shrinking Populations.” IMF Staff Discussion Note SDN/15/21, International Monetary Fund, Washington, DC.
De la Maisonneuve, Christine, and Joaquim. Oliveira Martins. 2013. “Public Spending on Health and Long-Term Care: A New Set of Projections.” OECD Economic Policy Paper 06, Organisation for Economic Co-operation and Development, Paris.
European Commission. 2012. Fiscal Sustainability Report 2012. European Economy 8|2012. Brussels: Economic and Financial Affairs, European Commission. http://ec.europa.eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-8_en.pdf.
European Commission. 2015. The 2015 Ageing Report—Underlying Assumptions and Projection Methodologies. Brussels: Economic and Financial Affairs, European Commission. http://ec.europa.eu/economy_finance/publications/.
Göbel, Christian, and Thomas Zwick. 2009. “Age and Productivity—Evidence from Linked Employer Employee Data.” ZEW Discussion Paper 09-020, Center for European Economic Research, Mannheim, Germany.
Higgins, Matthew. 1998. “Demography, National Savings, and International Capital Flows.” International Economic Review 39(2): 343–69.
International Monetary Fund. 2015. “Uneven Growth: Short- and Long-Term Factors.” Chapter 3 in World Economic Outlook. Washington, DC, April.
Nadiri, Ishaq, and Ingmar Prucha. 1993. “Estimation of the Depreciation Rate of Physical Capital and R&D Capital in the U.S. Total Manufacturing Sector.” NBER Working Paper 4591, National Bureau of Economic Research, Cambridge, MA.
Prepared by Aiko Mineshima.
Defined as the ratio of population ages 65 and older to population ages 15 to 64.
Budget transfers to the NSSI have been twofold: (i) ex-ante annual regular transfers of 12 percent of projected insured income, and (ii) ex-post additional transfers to finance the NSSI’s deficit. Starting from 2016, there will be a single item called “transfer for shortage,” which combines the above two types of transfers.
The eight scenarios include medium, high, low, and constant fertility, instant-replacement-fertility, zero-migration, constant-mortality, and no-change (i.e., constant-fertility and constant-mortality).
Average hours worked for each cohort can be a proxy for the weight factor. Other desirable weights would be to adjust for labor productivity, possibly utilizing the average education attainment for each cohort as a proxy. The literature shows that labor productivity significantly differs across age groups (e.g., Göbel and Zwick, 2009, Skirbekk, 2004). Due to the lack of data feasibility for Bulgaria, this paper assumes 1 for the weight factor for all the cohorts.
It should be noted that TFP is measured as a residual, and any measurement errors in the labor and capital series will be captured in the estimate of TFP.
Alternatively, this parameter could be obtained from the Penn World Tables or other country-specific estimates.
More concretely, for example, the labor force participation rate of age 55-59 is assumed to rise to the rate of age 50-54 by 2030 for men and by 2035 for women. The rate of ages 60-64, 65-69, and 70-74 are also assumed to rise to the level of the one notch younger cohort by 2030 for men and 2035 for women and remain constant thereafter.
Since the authorities’ projections are available only through 2060, the implied replacement rate (RR) and coverage ratio (CR) are assumed to stay constant at the implied 2060 levels.
The 𝛼 coefficient could be estimated as the weighted average of public health care expenditure for age cohorts 65 years and above divided by the weighted average of public health care expenditure for younger cohorts. The relative size of each age cohort could be used as weights. Using this approach, the 𝛼 coefficient is expected to gradually rise over time as the share of older cohorts in the group 65 years and above increases. According to the available country-specific data, public health care per capita GDP costs continuously rise after the age of 45.
Historical data on labor force participation rates are from Eurostat. Historical and projected data on gross fixed capital formation are from World Economic Outlook. Historical data on compensation of employees are proxies by the nominal average wage multiplied by the number of employed persons from National Statistical Institute.
Debt projections are calculated with the standard debt equation: Dt = Dt-1 / (1 + nominal GDP growtht) – OBt + SFAt where nominal GDP growth rates are calculated with the assumption of annual inflation of 2 percent while the stock-flow adjustments (SFA) is assumed zero. The overall fiscal balances (OB) for 2022-2100 are assumed to be driven only by the age-related spending, starting from the balanced budget in 2021.
During periods of economic downturn, the government could be tempted to use the additional assets acquired to the state.
Transfer of Pillar 2 assets to the Silver Fund should be treated as a financial transaction (below-the-line) in accordance with the Eurostat manual (I.3.4 “Transfer of pension entitlements from the second pillar” of Eurostat’s Manual on Government Deficit and Debt: Implementation of ESA2010).