Effects of Population Ageing on Human Capital Expenditures in the Context of Developed and Developing Economies: Balancing Health and Education Expenditures

Population ageing has emerged as a pressing policy concern in the 21st century amid resource constraints and contextual differences. Given the importance of human capital development, limited resource allocation for health and education sectors has been vastly discussed in academic discourses, yet leaving gaps for further exploration. This study examines the direct effects of population ageing on human capital expenditures (health and education) and the balancing effects between these expenditures posed by the ageing in developed and developing countries. Dynamic panel data methods are employed in the empirical analysis for 88 countries with data spanning from 2000 to 2023. The empirical results present unique effects of population ageing on human capital expenditures with contextual differences. In developed countries, population ageing emerges as a significant factor in increasing health expenditure, while it does not affect education expenditure significantly. Notably, the significant balancing effects between health expenditure and education expenditure due to ageing indicate that more spendings on the health sector reinforce education budgets through fiscal synergies. Governments in these ageing societies leverage health spending as a complementary cornerstone of human capital development, potentially expanding their fiscal capacity. In contrast, the direct and balancing effects of ageing remain insignificant in developing countries, indicating a lack of responsiveness in fiscal priorities to ageing due to the inherent circumstances of these economies. The comprehensive analysis of this study highlights the urgency of context-specific policy strategies for effective resource allocations to sustain human capital in the face of an unprecedented demographic change. JEL codes: H51, H52, J14, J18, J24