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Quantifying Impact of Aging Population on Fiscal Space

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  • Seok Gil Park
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    Abstract

    This paper quantitatively investigates how population aging trend affects fiscal space measured as unused revenue generating capacity by utilizing a standard neoclassical growth model. A calibration exercise for G-7 countries shows that France, Germany and Italy suffer greater revenue impact from a given reduction in hours worked due to their larger government expenditure. Corrective measures such as pension reform and flexible expenditure policy would be required in order to mitigate the impact of aging on fiscal space.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/164.

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    Length: 25
    Date of creation: 01 Jun 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/164

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    Related research

    Keywords: Aging; Economic models; Group of seven; Labor supply; Tax revenues; tax rates; fiscal space; tax rate; tax revenue; government expenditure; fiscal policy; tax bases; tax base; pension; taxation; expenditure policy; labor income; fiscal sustainability; pension reform; government spending; retirement; labor force; pension reforms; dependency ratio; fiscal affairs department; fiscal limits; retirement age; fiscal affairs; fiscal balance; national accounts; fiscal deficits; government budget; fiscal stress; public finance; taxable income; budget constraint; government budget constraint; public pension; labor force participation; government revenue; public pension reforms; fiscal deficit; life expectancy; aging population; fiscal impact;

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    1. Dirk Niepelt & Martín Gonzalez-Eiras, 2011. "Ageing, Government Budgets, Retirement, and Growth," Working Papers 11.06, Swiss National Bank, Study Center Gerzensee.
    2. Mathias Trabandt & Harald Uhlig, 2006. "How Far Are We From The Slippery Slope? The Laffer Curve Revisited," SFB 649 Discussion Papers SFB649DP2006-023, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    3. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1994. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
    4. Eric M. Leeper & Todd B. Walker, 2011. "Fiscal Limits in Advanced Economies," Economic Papers, The Economic Society of Australia, vol. 30(1), pages 33-47, 03.
    5. Nicole Maestas & Julie Zissimopoulos, 2009. "How Longer Work Lives Ease the Crunch of Population Aging," Working Papers 728, RAND Corporation Publications Department.
    6. Joana Pereira & Philippe D Karam & Dirk Muir & Anita Tuladhar, 2010. "Macroeconomic Effects of Public Pension Reforms," IMF Working Papers 10/297, International Monetary Fund.
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