Economic and Fiscal Implications of Aging for Subnational American Governments

Abstract

This article begins with a brief review of the extensive literature dealing with the macroeconomic consequences of population aging in industrialized societies and places the question in the context of the political and economic framework of the United States. Next, we move to the fiscal ramifications of population aging for subnational units of government. The varying demographic sources of aging are then introduced and their economic implications are reviewed. The role of population aging within the context of subnational fiscal impacts is first examined by reviewing patterns of change in demand for state-government-provided public goods and services associated with an older population. These include primarily health care and income security. These considerations on the expenditure side are then extended to substate government, where primary and secondary education are easily the largest component of public budgets. Finally, the implications of demographic change on the revenue side of state and local public finances are considered, including potential impacts on sales, property, and income tax receipts.