This paper investigates the relationship between an aging population and public debt in the United States. Specifically, it examines whether an older population leads to higher public debt levels. Using a Vector Autoregression (VAR) model, we analyze the impact of several key variables: the dependency ratio, debt-to-GDP ratio, labor productivity, hours index, primary surplus, and the natural rate of interest. The dependency ratio is decomposed into trend and cycle components to provide a more nuanced analysis. Our findings reveal that shocks to both the trend and cycle components of the dependency ratio lead to increases in public debt. However, the Forecast Error Variance Decomposition (FEVD) indicates that long-term demographic trends (trend component) have a significantly larger impact on public debt compared to cyclical variations. This suggests that structural changes in the population, such as declining birth rates, play a major role in driving public debt levels. These results underscore the substantial and lasting impact of demographic trends on fiscal sustainability, highlighting the importance of considering long-term demographic shifts in public debt management.

Aging and Debt: An empirical analysis of US trends

WEHBE, MARIE LINE
2023/2024

Abstract

This paper investigates the relationship between an aging population and public debt in the United States. Specifically, it examines whether an older population leads to higher public debt levels. Using a Vector Autoregression (VAR) model, we analyze the impact of several key variables: the dependency ratio, debt-to-GDP ratio, labor productivity, hours index, primary surplus, and the natural rate of interest. The dependency ratio is decomposed into trend and cycle components to provide a more nuanced analysis. Our findings reveal that shocks to both the trend and cycle components of the dependency ratio lead to increases in public debt. However, the Forecast Error Variance Decomposition (FEVD) indicates that long-term demographic trends (trend component) have a significantly larger impact on public debt compared to cyclical variations. This suggests that structural changes in the population, such as declining birth rates, play a major role in driving public debt levels. These results underscore the substantial and lasting impact of demographic trends on fiscal sustainability, highlighting the importance of considering long-term demographic shifts in public debt management.
2023
Aging and Debt: An empirical analysis of US trends
aging
debt
trends
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/20.500.12608/74362