Changing Age and Household Patterns: Implications for Welfare Costs in Denmark 1982 – 2007

This paper studies the effects on tax revenues and welfare expenditures in Denmark caused by changes in age and household structures over the years 1982-2007. During that period, there has been a minor fall in the old-age dependency ratio, and a major increase in the number of people living alone, lone parents and cohabiting couples. Focusing on components of welfare services with noticeable differences in unit costs across age and household status, we find that changes in age structures have improved public finances by 1.6% of GDP whereas changing household structures have worsened public finances by almost 1% of GDP on the yearly budget. While the net fiscal effect of changing household structures is minor, the gross effects are substantial. In a future characterized by population ageing, public finances may be adversely affected by changes in both age and household structures, thus intensifying calls for welfare reforms.