Do demographic changes affect fiscal developments?

This article analyzes the effects of demographic changes (low fertility rat es and a high old-age dependency ratio) on fiscal developments (debt, expen diture, tax, revenues, social security expenditure, and social welfare reve nues to GDP ratios) in Greece over the period 1960 to 1995. The empirical e vidence suggests that there is a long-run relationship between each fiscal variable and the two demographic variables. The estimation results show tha t in the long-run the double-aging process-an increase in the old-age depen dency ratio and a decrease in the fertility rate-will increase the size of public debt and total expenditure while decreasing total tax revenues. Simi lar results are obtained for the social security budget. Using vector error -correction model estimation, the results support the proposition that the double-aging process is responsible for the deterioration of fiscal develop ment. The results have important policy implications because the adoption o f suitable policies should help improve budget developments, facilitating t he real convergence of the Greek economy.