The Fiscal Impact of Population Change

Throughout the industrial world and in much of the Third World, populations are aging. This population aging results in part from lower fertility and in part from longer life. Lower fertility reduces the rate of population growth, so that recent generations are smaller than earlier generations, and therefore the relative number of older people is greater. This kind of aging raises the share of the elderly population, but it does not alter their health status, vigor, or remaining life expectancy. Population aging due to increasing longevity is a different matter. The very processes that lead to longer life may alter the health status of the surviving population, for better or for worse. Fortunately, there is growing evidence that in the United States at least, the years of life added by declining mortality are mostly healthy years, and that at any given age, the health and the functional status of the population are improving (Manton et al. 1997; Crimmins et al. 1997; Freedman and Martin 1999). Apparently, years of healthy life are increasing roughly as fast as total life expectancy. Population aging due to low fertility reflects a choice made by individuals to raise fewer children. In earlier times, elderly parents were often supported by their adult children, and the desire for old age support was a factor in deciding how many children to raise. Public sector pensions disconnect old age support from individual fertility and