The impact of ageing on economic dependency in Slovakia: An application of the Slovak national transfer accounts

Abstract

The intergenerational transfer of resources is gaining importance across countries facing population ageing. This paper investigates the economic and budgetary consequences of ageing in the Slovak Republic, which is projected to be one of the fastest ageing polities of the European Union. Using dependency and support indicators derived from the National Transfer Accounts, the quantitative analysis shows how this demographic development impacts aggregate labour income, consumption, taxes and public and private transfers. For instance, the transfer weighted public sector dependency ratio increases by 117 %, from 1.12 in 2015 to 2.43 in 2060. While increasing the retirement age may dampen the negative economic effect of demographic ageing, it cannot resolve the ensuing imbalance in labour income and consumption on its own. Moreover, the potential positive effect of higher fertility is preceded by an increase in consumption by the economically inactive Youth, which results in a deteriorating balance of private transfers. This trade-off is often overlooked in the scholarly debate. A combination of measures composed of increased labour productivity and lower consumption appears the most likely solution to the problem of growing imbalance between aggregate labour income and consumption.