Position Paper 25/2023 by C. Ferretti
The demographic crisis is undoubtedly one of the main sources of concern for the sustainability of public finances and the financing of the welfare system in many countries, particularly in Italy, which is already burdened by high public debt and, compared to other major European countries, threatened by dramatic demographic prospects. It is no coincidence that the latest Public Finance Document (Mef, 2023, p. 123) concludes that “demographic transition is one of the most significant challenges that Italy will face over the coming decades” and includes estimates of public debt that specifically take this aspect into account: in fact, while in the short term, the trajectory of public debt as a percentage of GDP is in line with expectations, given the adoption of strict public spending containment policies, in the long term, debt is expected to grow at a very rapid pace, mainly due to the influence of rapid demographic decline.
On the other hand, the Italian population continues to age, as certified by the latest Istat Report on resident population and household forecasts (Istat, 2022). In 2021, the average age rose by three years compared to 2011 (from 43 to 46 years) and there are 5.4 elderly people for every child, compared to less than one elderly person for every child in 1951. The old-age index (i.e., the ratio of the population over 65 to that under 15) has increased significantly and continues to grow, from 33.5% in 1951 to 187.6% in 2021. Finally, the geography of births shows a general decline in almost all areas, with the highest values in the South (-2.7%).
As is well known, the phenomenon of progressive population aging is the result of the combined effect of two processes: on the one hand, declining birth rates, which reduce the younger age groups, and on the other, longer average life expectancy, which increases the size of the older age groups.
Looking ahead to the future, the data is certainly no more encouraging. In 2050, for example, the percentage of people over 65 will rise by more than ten points to 35%, and we could reach a number of deaths double that of births. Furthermore, in terms of population composition, the number of households is expected to increase by about one million. However, these households are increasingly smaller and headed by increasingly older people.
The changing demographic composition of the population, and in particular the smaller number of young people and the larger number of elderly people, will inevitably also affect household consumption patterns, sometimes changing the demand for certain services provided by the public administration and making specific welfare policies necessary. Looking, for example, at local services alone, the aging of the population will lead to greater demand for care and assistance services for the elderly, while the smaller number of children will, on the contrary, lead to a reduction in demand for nursery places, at least in some areas. Local authorities will therefore find themselves faced with different levels of expenditure than in the past, presumably higher in certain specific sectors. In this working paper, in order to ascertain how many resources will be needed to cover the different number of recipients, current expenditure has been broken down by function and each function has been assigned an age group of possible users.
