Assessing Components of Uncertainty in Demographic Forecasts with an Application to Fiscal Sustainability

Alho JuhaLassila Jukka

Abstract

When the future evolution of demographic processes is described in a stochastic setting, the challenge is to communicate the meaning of forecast uncertainty in an understandable way, to decision makers and public at large. For the purpose of risk communication, a formal setting is developed, in which the roles of the demographic processes on point forecasts and predictive distributions can be elucidated. The communication problem becomes central in fiscal decision making, when eventual forecast errors have differential implications on the value of the policy options being considered. Tax rate that is required to maintain financial sustainability, until a given target year, is used for illustration.

Publication info

Results of research
Life course and economic implications of demographic change (LIFECON)
Research group
Macroeconomy and public finances
Series
ETLA Working Papers 92
Date
25.02.2022
Keywords
Aging, Demography, Predictive distribution, Risk communication, Stationary equivalent population
ISSN
2323-2420, 2323-2439 (Pdf)
JEL
J11, J18, H68
Pages
22
Language
English