AGING POPULATION AND FISCAL CONSEQUENCES IN INDONESIA

The government of Indonesia has implemented many of its development programs responding to population-related issues. One of the issues is the changes in the population composition (structure) or the demographic transition, concerning on an aging population. An aging population has major social and economic consequences. Based on the 2010 Population Census in Indonesia, the old–age support ratios were already low and are expected to continue to fall in the coming decades. In Indonesia, poverty is high among the elderly, with limited coverage of social security system. This paper analysis the age structure changes on Indonesia's budget deficit and the determinants of the aging population in Indonesia. This study used fixed-effect panel regression, calculating data from 2010 to 2014 over 33 provinces. The changes in the aging population structure tended to increase the budget deficit. The results from the provinces and panel regression showed a significant change in the composition of the population either at the young age structure (youth share) or at the structure of the old age (elderly share). Either caused increased effects on the government expenditures. On the other hand, the income per capita and the dependency ratio significantly reduced the budget deficit.