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Superannuation, Population Ageing and Living Standards in Australia

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Author Info

  • 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. Cutler, D.M. & Poterba, J.M. & Sheiner, L.M. & Summers, L.H., 1990. "An Aging Society: Opportunity Or Challenge," Working papers 553, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Freebairn, John, 1998. "Compulsory Superannuation and Labour Market Responses," Australian Economic Papers, Wiley Blackwell, vol. 37(1), pages 58-70, March.
  3. Ross S. Guest & Ian M. McDonald, 2000. "Population Ageing and Projections of Government Social Outlays in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 33(1), pages 49-64.
  4. repec:fth:harver:1490 is not listed on IDEAS
  5. 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.
  6. 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.
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Citations

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Cited by:
  1. George Kudrna & Alan Woodland, 2012. "Macroeconomic and Welfare Effects of the 2010 Changes to Mandatory Superannuation," Working Papers 201210, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
  2. 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.
  3. Andrew Worthington, 2008. "Knowledge and Perceptions of Superannuation in Australia," Journal of Consumer Policy, Springer, vol. 31(3), pages 349-368, September.
  4. 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.

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