January 1, 1997

Can we afford to grow old?

This paper investigates how OECD countries can address the challenges posed by aging. It first explores the strengths and weaknesses of various pension systems in light of future trends.

Subsequently, it illustrates the major uncertainties surrounding these trends by providing scenarios for the main future trends affecting old-age income support. To diversify risks, OECD countries should act on several fronts in order to prepare their economies for the aging of their populations.

The paper outlines two major ways to deal with these demographic and other trends, namely, first, investing in human capital and, second, investing in tangible and other intangible capital. Within each of these main lines of attack, several policy measures are suggested. Indeed, in exploring policy options, we take a broad approach. Whereas several of these policy measures involve social security and pension systems, other suggested measures effect the economy more generally.

The paper concludes that, just as other trends that affect our society, aging requires countries to adapt their economies. Since aging is a rather predictable trend, countries have ample time to adjust. Indeed, we advocate that countries spread their eggs not only over the baskets of various policy measures, but also over time. Gradually phasing in policy measures and announcing these measures early, avoids abrupt, painful policy corrections.

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Authors

Lans Bovenberg
A.S.M. van Linden