Consequently, with ageing, the economy’s capacity to sustain the elderly population would decline. An important consequence of this development is reflected in increasing fiscal pressures through higher government spending on social security, health care and other welfare programs for the elderly accompanied by lower tax buoyancy consequent to falling proportions of the productive labour force.
Given the hard budget constraint for many developing countries, this could mean lower government spending for programs that primarily benefit the young. With public pension schemes coming under increasing pressure to raise contribution levels or cut the size of social safety benefits, the issue of fiscal sustainability is one of the principal challenges facing policymakers worldwide, particularly in the context of intergenerational equity.