Population Aging and Public Finances: Evidence from El Salvador

摘要

This paper analyses the impact of population aging on the demand for social resources in El Salvador and discusses the implications in terms of public finances. The empirical contribution of the paper is twofold: first, an estimation of the fiscal dividend is presented to highlight the importance for El Salvador of adopting fiscal policies in the short and medium term in a context of demographic transition; second, a long-term budget projection is produced to assess how population aging will put pressure on government budgets. The paper shows that with the combination of reasonable fiscal policies aimed at increasing revenues and reducing expenditures, El Salvador could cut by almost a half the hypothetical debt burden resulting from not adopting fiscal measures to affront the demographic change. The results emphasize the importance for Latin American developing countries of exploring different fiscal policies to ensure the sustainability of public finances in the medium and long term.