Population Aging And Public Expenditure:A Dynamic Model

The aggravating trend of aging population in China since the end of 21th century has deep impact on society and economy.For example,intergenerational competition for public resources is increasingly fierce.Due to the differences in targeted groups the expenditure benefit for,people at different age has diverse preference for public spending.Resulting from population aging,intergenerational conflict in public spending has become significant,which means the scale of each public expenditure will change.We explore the influence of population aging on public expenditure structure and growth by an overlapping model.In the model,we choose three factors:political power of the old-age agents,longevity and population growth to characterize the aging society.The public expenditure is divided into pension,education,and public safety.We show that pension-to-GDP ratio will increase under the condition of greater political power of the old-age agents,greater longevity and lower population growth.Contrarily,weaker political power of the old-age agents,higher population growth results in higher education-to-GDP ratio.However,an increase in longevity produces an initial increase followed by a decrease in the public education-to-GDP ratio.At the same time,public safety-to-GDP ratio will increase with weaker political power of the old-age agents,lower population growth and shortened life span.There is intergenerational conflict in public spending in China which is supported by micro data.The regression using panel data from 2001 to 2014 implies that as population growth rate decreases,expected lifespan becomes longer,the political power of old-age agent strengthen,the public spending turn to pension from education and public safety.