today to 5.0 million in 2070), and the number of working-age persons (15-64)
is reduced by 10 per cent from 2002 to 2040 and by 16 per cent from 2002 to
2080. Over the same two periods, the number of elderly citizens (65+) increases
by 52 per cent and 47 per cent, respectively. Consequently, the demographic
dependency ratio increases by 27 per cent from 2002 to 2040 and by 28 per
cent from 2002 to 2080, cf figure 1. This indicates that the increase in the
dependency ratio during the next 35 years is not a phenomenon that is isolated
to the echo effects of the large post-war generations. Rather, it is a permanent
shift to a higher level15.
5 Fiscal sustainability
We start by presenting the path for public expenditures and revenues under un-
changed policies, cf figure 2. It is seen that expenditures gradually but steadily
increase to a level systematically above revenues16 .
Figure 2: Public expenditures and revenues
^—Expenditures---Revenues
Source: Velfærdskommissionen (2005d)
15 Compared to previous yet very recent demographic forecasts, the shift in the dependency
ratio is qualitatively different. In the 2001 forecast, the dependency ratio has a global peak
around 2040, but the ratio is then reduced to a level which is in b etween the current level and
the peak in 2040. This suggests that the demographic ageing problem has both a temporary
and a permanent component. The current demographic pro jection implies that the ageing
problem is almost entirely a permanent phenomenon, see e.g. Andersen et. al. (2005).
16Note that deposits into private pension funds are deductable in taxable income, the return
is taxed (at a low rate), but withdrawals are also taxable income. Since there has been a
substantial build-up of pension funds since the late 1980s this implies that there is a substantial
deferred tax payment in current pension funds. Therefore, the average tax share increases,
despite unchanged tax rates.
14