Population aging is expected to increase healthcare expenditures in OECD countries more than government revenues, putting pressure on government fiscal positions. Taxes on labor income are more vulnerable to aging than other tax types like consumption taxes. Deteriorating subnational fiscal positions may be difficult to overcome if subnational governments have limited revenue raising autonomy. Reforms to fiscal federalism may be needed to address imbalances across levels of government as the impact of aging is asymmetric depending on their expenditure and revenue responsibilities.

1. FISCAL
SUSTAINABILITY
AND
HEALTHCARE
23 November 2021
Interim Meeting of the Network on Fiscal Relations Across Levels of
Government

2. © OECD |
Summary of findings
2
Fiscal Sustainability and Health Care
 In all OECD countries population ageing is expected to put government fiscal positions under
pressure, as expenditures needs are expected to grow more than government revenues
 This pressure varies across countries and levels of government, depending on their health
system and on tax revenue mixes
 Taxes levied on labour income tend to be more vulnerable to population ageing than others
(e.g., social security contributions, personal income taxes and payroll taxes) while corporate
income taxes and consumption taxes tend to be more robust to population ageing
 Deterioration of subnational fiscal positions might be challenging to overcome when they have
little autonomy to raise revenues
 Imbalances across levels of government might require reforms to fiscal federalism

3. © OECD |
Health care expenditure is expected to rise more than GDP in
OECD countries
3
Fiscal Sustainability and Health Care
Growth in public health care expenditure in comparison to GDP
growth (excess % of GDP growth in 2040)
 Health expenditures tend
to increase significantly
more than GDP in all
OECD countries
 Until 2040, public health
expenditure is expected to
grow 11% to 71% more
than GDP in OECD
countries, with an average
cumulative increase in
excess of 28%
Source: COM/CTPA/ECO/GOV/CFE(2021)5 and COM/CTPA/ECO/GOV/CFE(2021)5/ANN1

4. © OECD |
Government revenues
are expected to
increase only in line
with GDP or even
slightly below it
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Fiscal Sustainability and Health Care
 Despite some variations in revenue
buoyancies across OECD countries,
values are by and large clustered
around unity
 On the other hand, changes in age
structure are expected to lead to a
decrease in government revenues in
virtually all OECD countries
Decomposition of general government revenue growth in 2040
Source: COM/CTPA/ECO/GOV/CFE(2021)5 and COM/CTPA/ECO/GOV/CFE(2021)5/ANN1

5. © OECD |
Taxes levied on labour income tend to be more vulnerable to population
ageing than those levied on private asset income and consumption
5
Fiscal Sustainability and Health Care
Distributions of age profiles across OECD countries (as a % of the maximum value)
 Labour income
peaks when
people are in their
40s and
decreases
abruptly from
there onward
 Private asset
income and
consumption, in
contrast,
decreases
modestly with
ageing
Source: COM/CTPA/ECO/GOV/CFE(2021)5 and COM/CTPA/ECO/GOV/CFE(2021)5/ANN1

6. © OECD |
Corporate income taxes are not only more resilient to ageing but also more
buoyant than other taxes
6
Fiscal Sustainability and Health Care
Boxplot of the long-run buoyancy coefficient (y axis) of the ECM model
by type of revenue (colour) and level of government (facet)
Most tax buoyancy
coefficients are
clustered around
unity, with the
exception of CIT
buoyancy coefficients,
which tend to be
slightly higher than
unity for all levels of
government
Source: COM/CTPA/ECO/GOV/CFE(2021)5 and COM/CTPA/ECO/GOV/CFE(2021)5/ANN1

7. © OECD |
As levels of
government have
different expenditure
and revenue
assignments, the
impact of population
ageing on their fiscal
positions is
asymmetric
7
Fiscal Sustainability and Health Care
Increase in the health expenditure-to-revenue ratio from 2018 to 2040
(percentage points)
Source: COM/CTPA/ECO/GOV/CFE(2021)5
and COM/CTPA/ECO/GOV/CFE(2021)5/ANN1
Scenario with estimated buoyancies Scenario with unitary buoyancies

8. Thank you
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