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The Coming Fiscal Crises—Drowning in Red Ink?

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There are a number of challenges we face in coming years which are likely to put enormous pressures on the public finances of governments virtually everywhere. Some of these challenges are of a demographic nature and have to do with the aging of populations. The share of the population accounted for by the elderly will rise rapidly in most of the developed countries in the next couple of decades. The dependency ratio, or the total number of persons requiring some form of support divided by the working-age population, will increase to levels not seen before in most of these countries. Indeed, this trend will not be limited to the developed countries—with a lag with respect to the rich countries of North America, Europe and Asia, emerging markets such as China, Russia, Poland, Indonesia, Turkey and Mexico will also see the graying of their populations as a result of increases in life expectancy. The rich countries of the OECD have extensive social safety nets in place and have guarante…