Abstract WP19-03

Population Aging and Public Finances: Evidence from El Salvador

Werner Peña

The world’s population is aging. The demand for social services from the elderly population is expected to increase. This will exert heavy fiscal pressure on many developing countries. This paper analyzes in detail the fiscal impact of population aging on the demand for social resources from people at the end of the life cycle in El Salvador and discusses the implications in terms of public finances. The empirical contribution of the paper is twofold: first, an estimation of the fiscal dividend is presented to highlight the importance for El Salvador of adopting fiscal policies in the short and medium term; second, a long-term budget projection is produced to assess how population aging will put pressure on government budgets. Both contributions are obtained using the National Transfer Accounts. The results emphasize the need of exploring different fiscal policies to ensure the sustainability of public finances in the medium and long term.