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Superannuation, Population Ageing and Living Standards in Australia

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  • Guest, Ross

    (School of Accounting and Finance, Griffith University, Gold Coast, QLD 2416)

  • McDonald, Ian

    (Department of Economics, University of Melbourne, Parkville, VIC 3052)

Abstract

In this paper we simulate the effect of an increase in the Superannuation Guarantee Levy (SGL) by 3 percent and 6 percent, respectively, on average living standards. We apply the Guest-McDonald model of optimal national saving for a small open economy. The simulations account for the projected age structure of the population, the differences in productivity of workers of different ages and the differences in consumption demands of young and older consumers. In this way we account for the impact of population ageing on living standards. To the extent that an increase in the SGL increases national saving beyond what it would otherwise have been, there are two effects on living standards. One is an intergenerational redistribution of living standards from the present to future generations. The effect is to lower living standards for approximately the next 30 years after which living standards rise, compared to their levels under the benchmark scenario. However, the rise in living standards in the distant future is negligible in discounted terms. The second effect arises from the nature of the SGL as a tax on employment. This reduces employment and therefore reduces the future cash flows available to support living standards. The negative impact of this employment effect on living standards is small according to our calculations.

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Bibliographic Info

Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

Volume (Year): 32 (2002)
Issue (Month): 1 (March)
Pages: 19-33

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Handle: RePEc:eap:articl:v:32:y:2002:i:1:p:19-33

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Related research

Keywords: Ageing; Consumer; Consumption; Saving;

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References

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  1. repec:fth:harver:1490 is not listed on IDEAS
  2. David M. Cutler & James M. Poterba & Louise M. Sheiner & Lawrence H. Summers, 1990. "An Aging Society: Opportunity or Challenge?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 1-74.
  3. Guest, R.S. & McDonald, I.M., 1999. "Population Ageing and Projections of Government Social Outlays in Australia," Department of Economics - Working Papers Series 689, The University of Melbourne.
  4. Freebairn, John, 1998. "Compulsory Superannuation and Labour Market Responses," Australian Economic Papers, Wiley Blackwell, vol. 37(1), pages 58-70, March.
  5. Bateman, Hazel & Ablett. John, 2000. "Compulsory Superannuation and Australian Generational Accounts," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 30(1), pages 33-48, March.
  6. Guest, R.S. & McDonald, I.M., 1999. "Ageing, Immigration and Optimal National Saving in Australia. a," Department of Economics - Working Papers Series 690, The University of Melbourne.
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Citations

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Cited by:
  1. Louise Carter, 2005. "Labour Market Responses to the Abolition of Compulsory Superannuation," Economics Discussion / Working Papers 05-18, The University of Western Australia, Department of Economics.
  2. George Kudrna & Alan D. Woodland, 2013. "Macroeconomic and Welfare Effects of the 2010 Changes to Mandatory Superannuation," The Economic Record, The Economic Society of Australia, vol. 89(287), pages 445-468, December.
  3. Andrew Worthington, 2008. "Knowledge and Perceptions of Superannuation in Australia," Journal of Consumer Policy, Springer, vol. 31(3), pages 349-368, September.
  4. John Janssen, 2002. "Long-term fiscal projections and their relationship with the intertemporal budget constraint: An application to New Zealand," Treasury Working Paper Series 02/05, New Zealand Treasury.

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