Question

What do you think is the effect of a high dependency ratio in developed countries

Answer 1

The dependency ratio is the percentage of people either too old or too to be working, where the age divided by those 15-64 years of age. Dependency ratios indicate the population breakdown of a nation and how well dependents could be taken care of.

Explanation:

• Across the West, the dependence ratio is rising as the population lives longer. It raises the percentage of individuals in excess of 65 which decreases the dependence levels. Pensioners face lower income tax. Therefore, the working popilace has more responsibility for paying tax, which could create disincentives to work and decrease the disposable income. The government must have the provision of a federal pension and other incentives including a promise of minimum income for the aging dependent populace.There are also greater demands for indirect spending on retired people.
• Higher dependence levels are expected to limit growth in productivity. Non-productive population growth may decrease production potential and lead to a lower long-term trend rate of economic development. Added strain on the government's budget could contribute to higher borrowings or higher taxes that could limit productivity if the government which also reduce economic growth.

Answer 2

A high dependency ratio in developed countries will reduce the poverty rate.

• People who are retired pay low-income taxes. Therefore the young working people have more load to pay tax.
• Pension funds have to stretch further because of the rising percentage of retired people.
• The demand for raising the pension age is increasing in the public ad private sectors.
• A high dependency rate will reduce the poverty rate.

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