Four Long-Term Scenarios for the Dutch Government and the Health Care Sector

Abstract

Since 2003, a new set of scenario-analyses have been published by the CPB in Four Futures of Europe (de Mooij and Tang, 2003), four scenarios are sketched for the development of the European economy until 2040. The scenarios are defined in terms of two groups of 'key uncertainties'. The first concerns national institutions: to what extent will the mix of public and private responsibilities change? The second key uncertainty concerns international cooperation: to what extent are national states willing and able to cooperate in Europe and at a world wide scale? In the CPB-study Four Futures of the Netherlands: Production, Labour and Sectoral Structure in Four Scenarios until 2040 (Huizinga and Smid, 2004), the European scenarios are elaborated for the Dutch economy. These scenarios differ with respect to demography(population growth, ageing), macro-economic development (productivity, labour market participation, inflation, interest rates, world trade), government policy (e.g. social security system) and specific sector trends. In this paper, the four scenarios are discussed for the development of the sectors government (public administration, defense and subsidised education) and health care (including pharmaceuticals) are discussed. Both sectors are of great economic importance in the Netherlands. In terms of value added they constituteabout one fifth of the Dutch economy; in terms of employment and final consumption even about one quarter is involved. Furthermore, these sectors have in common that they are mainly financed publicly (by social security contributions and taxes) and that productivity growth is relatively slow. Baumol's cost disease model suggests that this can lead to increasing pressure on public finance and to negative effects for economic growth and inflation. In the two scenarios that stress the importance of collective provisions, (Regional Communities and Strong Europe), the share of government production (public administration, defense and subsidised education) will increase from 10.5% of GDP in 2001 to about 12% in 2040. In the other two scenarios, (Transatlantic Market and Global Economy), the government sector will decrease in size to 8% of GDP in 2040.