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Government Policies

Four broad strands of government policy bear on meeting the challenge of an aged population in the microeconomic sphere.

First, governments may influence or mandate individuals to provide for their old age security by smoothing their consumption over their lifetime; governments may also seek to provide some kind of protection to limit the likelihood of elderly destitution. As is evident in the Asian case, they can do this by explicitly mandating savings or by providing incentives to save or to make family transfers. The government can also introduce social insurance policies that entail an intergenerational pact providing for significant transfers from the working age population to retired households. Policies that enhance the productivity of savings - particularly those that strengthen the functioning of the financial sector - are also critical elements of policy in this regard.

Second, government policies may also seek to provide incentives to individuals and enable them to remain engaged in the labor force for a longer period as life expectancy increases. Promoting and facilitating a longer working life, by reducing the share of the elderly dependent population, correspondingly reduces the magnitude of the intergenerational transfer that is needed as a population ages.

Third, government policies in the sphere of health care can both increase the capacity of individuals to participate in the labor force during part of their elderly years, and reduce the financial burden of medical care to be borne by the elderly during their retirement. They can achieve the latter objective by enabling the elderly to earn income to pay for medical and long-term care.

Fourth, government policies may seek to encourage a higher rate of fertility or increased immigration, essentially lessening the pace at which the EDR rises.

Education

In our last report we have shown that there is a significant relationship between educated population and the economic performance of a country.

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* Contributed by: -
Manvendra Pratap Singh & Vishal Narlawar,
MBA (majoring in Marketing),
ICFAI Business School, Hyderabad.