Frantisek Brocek is an undergraduate economics student at the University of Strathclyde. This post summarises some of his recent research on demographic trends, and the implications for fiscal sustainability.
It is widely understood that Scotland, like the rest of the UK, faces a challenging demographic outlook. Rising life expectancy combined with declining fertility rates mean that the ratio of Scotland’s population of pension age relative to its working age population is increasing.
One of the big challenges that this creates is in terms of the outlook for the public finances. People above the state pension age tend to have lower incomes and expenditure than those of working age, and hence pay less tax per person. But at the same time, levels of public spending on this group are substantially higher than for the population of working age. Chart 1 shows the profile of public spending and tax receipt over the lifetime for a typical individual. (The profile is based on UK data but is not substantially different for Scotland).
But how does the demographic pressure facing Scotland in the coming decades compare to the effects of population in the recent past? How does Scotland’s demographic challenge compare to the outlook for the UK as whole, or other European countries? And what can or should the Scottish Government do?Continue reading