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Ageing and Fiscal Challenges across Levels of Government

image of Ageing and Fiscal Challenges across Levels of Government

Populations in OECD and emerging economies are ageing rapidly, which will have significant macroeconomic impacts, including on public expenditures and tax revenues. The rules and practices that govern fiscal relations among different levels of government, such as their responsibilities for taxation, spending and debt management, have a bearing on economic efficiency and ultimately growth. The consequences of population ageing at subnational government levels are especially intense. Many local governments are vulnerable to the ageing of their populations from a fiscal perspective. The economic and fiscal challenges of an ageing population go beyond intergovernmental boundaries, and they require complex intergovernmental policy responses. This volume brings together cross-country studies of fiscal policy, demographics and spatial productivity, as well as country studies of Brazil, Canada, China and Germany.

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Brazil’s demographic transition and its effect on public spending

This chapter presents future public spending projections for Brazil as a result of the demographic transition. The end of the demographic dividend, which will be followed by population ageing, will affect spending on health, education, social programmes and social security, including pensions. Health spending will increase significantly in absolute terms but should maintain its share as a proportion of gross domestic product (GDP). Education expenditure will decline. As education spending in Brazil is determined by the level of education, the reduction in spending will not be linear, and will affect all levels of government. The biggest challenge will be the payment of social security benefits, putting at risk the sustainability of the government finances. Therefore, the most urgent task for federal, state and municipal governments is to pursue comprehensive social security reforms that will guarantee basic government functions in the coming years.

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