The fiscal impact of population aging in Sweden: 2015-2060

Abstract: This study analyses the fiscal impact of population aging in Sweden from 2015 to 2060. We consider the three main areas of public spending in the demographic context: education, health care and pension. A separate analysis is performed for each of the three alternative macroeconomic scenarios, which are the status quo, the pension reform and the health care reform. Our results indicate that the old pension system, entirely financed by the state, is not sustainable, and thus the pension reform of 1994 was justified and is not likely to be changed in the future. The new pension system, however, is sustainable, since increase in the medical costs can be covered by pension savings and the GDP growth. Furthermore, we show that under the assumption of technological progress in medicine the current health care system will become unsustainable in the presence of population aging. Therefore, a health care reform decreasing the share of state financing appears as a necessary solution to keep the fiscal balance in the long run.