WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

This paper examines the role of ageing costs in the reformed EU fiscal rules. Governments must pre-emptively tighten fiscal policy to offset projected ageing cost increases, but required adjustments depend on underlying assumptions. Using alternative scenarios, we show that small changes in ageing cost assumptions can lead to marked differences in debt paths and consolidation needs. The framework ignores ageing-related uncertainty in these projections. Lower ageing costs may even raise long-run debt by reducing upfront tightening. Overall, our results highlight that fiscal adjustment requirements – and their economic effects – are highly sensitive to uncertain and arbitrary ageing-related assumptions.