The fiscal impact of population ageing in Germany: an unequal challenge for different levels of government

Population ageing is a global phenomenon, and Western European welfare states, in particular, are ageing at a rapid pace. Still, not all states or even regions within a given country are ageing in the same way, and we find significant differences among them. While some metropolitan areas are attracting younger inhabitants and are even growing, peripheral areas are suffering from out-migration and rapid ageing. In federal countries, these demographic differences create challenges across levels of government, and the variation in the cost and revenue structures of these levels should be taken into account. There are also considerable differences among states or municipalities due to diverging demographic developments. In this chapter, we present age profiles of government revenues and expenditures per capita for the federal, state, and local governments, and use the population projections for the different German Länder to examine how demographic changes affect budget gaps at each level of government. The results show the long-term fiscal implications caused by different ageing patterns. As out-migration reinforces economic fortunes, a compensatory factor in the fiscal equalisation scheme among the Länder is discussed.