Some intergenerational arithmetic to control public debt in the EU

Long-term projections are the bedrock of any analysis looking at the sustainability of public finances. This paper computes the changes in economic growth in individual European Union countries needed for government debt-to-GDP ratios to stay on their baseline trajectories (taken from the European Commission’s Debt Sustainability Monitor 2023) under high life expectancy, low-fertility, low-migration, and high-migration scenarios. These scenarios are provided in the Commission’s Ageing Report (2024). We find that deviations of migration from the baseline entail the largest effect on the required rate of economic growth. The effects of the low-fertility scenario are most pronounced in the very long run and sometimes exceed those of low migration. Our findings inform policymakers about the potential role of higher productivity growth in alleviating the public finance consequences of demographic shocks. The importance of higher productivity growth is increased by the fact that in some countries demographic projections tend to be optimistic.