Population Ageing and Public Expenditure Trends in Finland

The impact of population ageing on public expenditure development in Finland is analysed by Kinnunen and Tuovinen. As in other countries, ageing will lead to an increase in expenditure on pensions and other welfare services. Other than the increase in spending due to the expected demographic developments, they observe that the risk of overrun in expenditure is mostly related to the production process in public services, given that the public sector in Finland is generally service-oriented. In order to contain the upward trend in costs, productivity developments in the public sector will have to be particularly relevant. The Authors note that if a positive productivity trend were to generate substantial cost containment, tax cuts could also be consistent with fiscal stability. However, this would imply a reversal of the negative productivity trend observed in recent years. Hence, it would be advisable that the adjustment of expenditure policy allows the government to face the possible negative growth and productivity scenarios