Which among the following is / are economic consequences of a high dependency ratio?
1. Reduced government expenditure
2. Reduced capital formation
3. Reduced tax collection
Choose the correct option from the codes given below:

Answer: [B] Only 2 & 3

This question is asking you about the fall outs of large number of elderly people or children in the population. Large numbers of young and/or old people tend to burden the economy as the consumption needs of economically non-productive members of the society reduce the overall capacity for saving and investing. Countries with a large younger population would have to spend more in terms of providing infrastructure for schools and pediatric hospitals etc. Also funds will have to be spent on day-care facilities and education for parents. Countries with a larger aging population will have to provide places like senior homes etc.
1. Thus, government expenditure on such services would increase so statement 1 is incorrect.
2. The second statement is correct. Capital Formation is linked to productivity in the economy, for which working population is look upon.
3. Third statement is also correct. Children may not be paying taxes because they don’t have income. Elderly people pay less taxes because government gives them tax rebates.

This question is a part of GKToday's Integrated IAS General Studies Module