The Fiscal Impact of Population Aging in Germany

Previous studies have shown that population aging has severe consequences for public spending. However, in welfare states with a federal budget structure, population aging will affect the levels of government to differing degrees. This article focuses on the impact of population aging on the fiscal system of the Federal Republic of Germany. The analysis draws upon profiles for public transfer flows by single years of age to illustrate the impact of age structure changes on the cost and revenue structures at the different levels of government. The results show that Lander and local governments are likely to achieve cost reductions while the federal budget and social security will face higher expenditures because of the increasing number of elderly people. This study provides valuable information on the age utilization of public flows and on the need for restructuring the allocation rules for government revenues and expenditures across levels of government.