The Effect of Population Ageing on Public Expenditure: A Country-Level Panel Data Analysis

Abstract

Using country-level panel data for 52 countries from 2003 to 2019 and the system generalized method of moments (SGMM) technique, this article evaluates the impact of population aging on public expenditure. The estimated results show that the growth of the old-age dependency ratio increases the share of spending on health care and social protection, whereas significantly decreases the percentage of government expenditure on education and economic affairs in government expenditure. The ratios of public expenditure to GDP declines as the rise of the elder proportion. Combined with the effect of reduction in the youth dependency ratio, this article confirms that the effect of population aging might reduce pressure on government expenditure. In particular, the impact of changing the expenditure structure might be alarming because this structure could affect some socio-economic aspects, including economic growth. This poses challenges for the government to balance budget plans adapted to population aging and ensure long-term development goals. 
Keywords: poplation ageing, dependency ratio, public expenditure, SGMM.