The Impact of Population Aging on Local Fiscal Sustainability in China

Faculty of Economics, Tianjin Normal University, Tianjin 3300387, China

^* Corresponding author: zhang-essay@outlook.com

Abstract

Under the new normal of demographic development, China is facing severe population aging. In 2022, China already has 280 million elderly people over 60 years old, constituting close to one-fifth of the nation’s entire population, of which the size of the elderly group aged 65 and above exceeds 210 million. The pattern of deep aging has intensified the structural pressure on social welfare expenditure. This demographic shift has intensified pressures on social welfare expenditures, particularly in healthcare and pension systems, posing significant challenges to fiscal sustainability. This study analyses the impact of population ageing trends on the long-term stability of local finances in China. This research examines how population aging trends affect the long-term fiscal sustainability of China’s local authorities, employing a comprehensive evaluation framework and panel data from 31 provinces (2008–2020). Using entropy weight methods and fixed-effects models, the analysis reveals that aging significantly undermines fiscal sustainability, with a regression coefficient of -0.359 for the elderly population ratio. Additionally, industrial structure and urbanization exacerbate fiscal pressures, while technological investments demonstrate a positive mitigating effect. The findings highlight the urgency of policy reforms to address aging-related fiscal risks, offering insights for achieving long-term fiscal balance amid demographic transitions.