Ageing and Fiscal Sustainability in the European Union

Abstract

Demographic change exerts pressure on public finances and labour markets. In this study, we analyse the demographic dynamics in the European Union (EU) up until 2100 and present different strategies to cope with the challenge of ageing (building on Groot and Peeters 2012, and Peeters and Groot 2012). The aim of this study is to investigate whether the EU economies, currently under fiscal distress due to the financial crisis, will be able to cope with the fiscal impact of the retiring baby boom generations in the decades to come. This impact does not only involve the public budget for the society as a whole, but also the fiscal burden for the actual workers who, in the EU social security systems, mainly pay for the old age pension benefits of the current old age generations. In our analyses of the policy options, we explicitly take account of these workers by imposing a no-change in fiscal pressure for these workers from 2010 onwards.