 Michigan's Changing
Demography: Effects on State Expenditure
Paul Menchik, Ph.D. menchik@msu.edu, MSU Department of Economics Overview Projections of federal government spending over the long run have been heavily influenced by the demographic structure of the nation. Obvious examples of programs whose outlays are quite sensitive to the demography would be Social Security and Medicare. While the budgetary agencies-the Congressional Budget Office and the Office of Management and Budget-have utilized anticipated demographic change to influence their long run spending projections for some time, the states tend to use far more "short run" techniques. Determination of future government spending is a complex enterprise. One can think about this problem within a market perspective. Attributes, including demography, of the beneficiaries of public services would influence the "demand" side of the market. The willingness and ability of taxpayers to shoulder the tax burden to pay for these expenditures would constitute the "supply" side. The analysis in this project will largely focus on demand side considerations leaving supply side analyses to political experts. The purpose of this project is to investigate how demographic change in the state of Michigan can be expected to influence statewide public expenditures over the long run. By long run, a period ranging from five to twenty five years in under consideration. This project will focus on expenditure categories that seem especially sensitive to Michigan's demographic structure. Examples include Healthcare, Education, Retirement Pensions, Corrections, Family Independence Agency outlays, Parks and Recreation, among others. The state expends funds as mandated by the federal government in the Medicaid program. As is well known, health care expenditures increase significantly with age. As the Michigan population ages, Michigan's outlay for Medicaid would also rise. Michigan's outlays for K through 12 and higher education would be quite sensitive to the number of residents in school age years, and a careful review of this demographic trends would be important in forecasting potential outlays. View
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