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OECD Economic Policy Papers

The OECD Economic Policy Papers series is designed to make available selected studies on structural and macro-economic policy issues of current interest. The Papers are produced in the context of the work carried out on the two regular OECD titles, OECD Economic Outlook and Going for Growth.

English

The long game: Fiscal outlooks to 2060 underline need for structural reform

This paper updates the long-term scenarios to 2060 last published in July 2018, with a special focus on fiscal sustainability and risks. In a baseline economic and fiscal scenario, trend real GDP growth for the OECD + G20 area declines from around 3% post-COVID to 1½ per cent in 2060, mainly due to a deceleration of large emerging-market economies. Meanwhile, secular trends such as population ageing and the rising relative price of services will keep adding pressure on government budgets. Without policy changes, maintaining current public service standards and benefits while keeping public debt ratios stable at current levels would increase fiscal pressure in the median OECD country by nearly 8 percentage points of GDP between 2021 and 2060, and much more in some countries. Policy scenarios show that reforms to labour market and retirement policies could help boost living standards and alleviate future fiscal pressures. An ambitious reform package combining labour market reforms to raise employment rates with reforms to eliminate early retirement pathways and keep effective retirement ages rising by two thirds of future gains in life expectancy could halve the projected increase in fiscal pressure in the median country, even after taking into account future spending pressures associated with ageing.

English

Keywords: labour market reform, long-term scenario, retirement age, fiscal pressure, long-term projection, fiscal sustainability
JEL: H68: Public Economics / National Budget, Deficit, and Debt / Forecasts of Budgets, Deficits, and Debt; O4: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity; J11: Labor and Demographic Economics / Demographic Economics / Demographic Trends, Macroeconomic Effects, and Forecasts; E6: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
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