Demographic changes and local public expenditure in a macroeconomic perspective. Some Norwegian examples

Abstract

Norway, like other western countries, expects rather dramatic changes in the age composition of its population. As a part of the development of the welfare state, there has been an expansion of expenditures in the public sector. The increase is caused by changes in the number and composition of clients, by improvements in the coverage services, and by changes in the use of manpower per client. In Norway, a large part of social services are handled by the local government sector (municipalities and counties). To model the production of the local government sector, we have developed a macro model which reflects the coverage of different services according to demographic characteristics and standards defined as man-hours per client. The model is called the MAKKO model. The results of a simulation show that demographic changes are of minor importance for local government expenditures in most sectors when compared to changes in standard and coverage rates. To examine the macroeconomic effects of local activities, we use the manpower projections from MAKKO as input for a macro-economic model of the Norwegian economy (MODAG). Results indicate that a shift in standards and coverages in different client sectors would have rather important effects on the Norwegian economy.