The Effects of Population Aging and Life Expectancy on Economic Growth: The Case of Emerging Market Economies

Introduction

It is generally accepted that the underlying cause of population aging is increased life expectancy. However Caselli and Vallin (1990) stated that this premise does not fully explain the truth and that demographers explain the aging of the population in developed countries by low fertility rates. From this point of view, population aging is associated with the demographic transformation of countries. The decline in birth rates and the decline in mortality, as well as the improvements in health systems, have resulted in the aging population. It is based on the well-known theory of Becker (1960). According to this theory, in developed countries, the birth rate is gradually declining. Also, the improvement of health conditions in high-income countries over the same period increased life expectancy at birth, causing the population to gradually become older with low birth rates (Murphy, 2021).

Since Coale and Hoover (1958) research, studies have begun in the relevant literature showing that the aging of the population and the high old age dependence rates along with the decrease in saving rates reduce the economic growth. One of the reasons of discussing this issue in the literature is that countries' aging populations may cause social security-related problems in their fiscal systems.

As Becker (1960) reveals, there is a reverse correlation between economic development and birth rates. In countries with a rapidly aging population, substantial impacts occur in many areas such as economic growth, employment, domestic demand, urbanization, social security system, public finance, and labor-intensive sectors. In this regard, measures should be taken against the aging population (Zuo & Yang, 2009). As a result of all these counts, the population aging went beyond being a demographic problem and became the subject of macroeconomic studies. Based on the results, countries have initiated various social security reforms to decrease the burden of social expenditures that aging may pose in the future. Besides, they also implements different kinds of social policies (Orlická, 2015).

Examining Asian countries with different demographic transformations, Chomik and Piggott (2015) focused on the problems caused by this transformation in social policies. According to the authors, this century is characterized as “Ageing Century”. Rapid population aging forces countries to take action. Countries need to take measures against the problems caused by population aging.

The population aging can also have another severe fiscal consequences, which can have intergenerational effects. Therefore, it is considered very important to examine the population aging in emerging market economies. Meeting the social security needs of the aging population can trigger fiscal crises. Furthermore, it can also trigger inflationary and deflationary effects and severe increases in national borrowing Katagiri et al. (2020). In this respect, the study puts forward a framework regarding the population aging and makes several suggestions. Already, Varol İyidoğan et al. (2017) showed that public health expenditures arising from the population aging will impact tax burdens. Kudrna et al. (2015) also showed that the aging of the population shifted the tax base from labor income to wealth income and consumption, and significantly increased public expenditure of old ages. The increasing fiscal costs will necessitate various regulations in taxes and public expenditures. Kiziltan and Golovko (2019) showed that Turkey, an emerging market economy, has economic and fiscal effects of population aging. It is reported that all demographic indicators of Turkey show that population aging in this country will be a severe problem in the future.