Can an Ageing Scotland Afford Independence?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Key words: Scotland, independence, OLG, government spending, population ageing JEL codes: C68, E17, H53, J11 Terms of use: Documents in AbstractThe aim and scope of this paper is to isolate the effects of population ageing in the context of potential Scottish independence. A dynamic multiregional Overlapping Generations Computable General Equilibrium (OLG-CGE) model is used to evaluate the two scenarios. The status quo scenario assumes that Scotland stays part of the UK and all government expenditures associated with ageing population are funded on a UK-wide basis. In the independence scenario, Scotland and the rest of the UK pay for the growing demands of the ageing population independently. The comparison suggests that Scotland is worse off in the case of independence. Effective labour income tax rate in the independence scenario has to increase further compared with the status quo scenario. The additional increase reaches its maximum in 2035 at 1.4 percentage points. The additional rise in the tax rate is nonnegligible, but is much smaller than the population ageing effect (status quo scenario) which generates an increase of about 8.5 percentage points by 2060. The difference for government finances between the status quo and independence scenarios is thus relatively small.

Fiscal Challenges and Opportunities for an Independent Scotland

“…However, our model suggests that, while population ageing will increase public spending quite substantially in both Scotland and the UK as a whole, the difference between the size of this effect in Scotland and the UK will be quite small. This is a very similar conclusion to that reached by Lisenkova and Mérette (2014) using a different methodology.…”

Funding Pensions in Scotland: Would Independence Matter?

“…Figure 3 also shows how the relatively faster ageing population in Scotland is much less important than the overall increase in SP costs: the differential between Scotland and UK peaks at less than 1 per cent of tax revenues. This is consistent with Lisenkova and Mérette (2014), whose model also includes endogenous responses to the changing demographics and who also note that the extra cost of ageing in Scotland is small relative to the overall cost of ageing itself. It is worth noting that although Scotland is ageing faster than the UK as a whole, it is not ageing as fast as many other European countries.…”

How serious is a devolved data deficit? A Welsh perspective

“…Undoubtedly the better quality economic accounts available in Scotland has enabled greater levels of economic modeling work, and developed macroeconomic models for Scotland have seen numerous uses over the years. In the run up to the 2014 independence referendum the outputs of these economic models informed the respective economic arguments put forward by both sides (Lisenkova and Merette, 2013), and more recently such models have been used to estimate the economic implications of Brexit for Scotland (Figus et al, 2017). However even in the case of Scotland the paucity of some regional economic data has been recognized.…”