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An inter-temporal general equilibrium analysis of the Australian age pension means test

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  • Kudrna, George
  • Woodland, Alan

Abstract

The Australian age pension is somewhat unusual among developed countries in that it is means tested against both the claimant's income and assets. While means testing of age pensions facilitates the aims of directing public pensions to those senior individuals most in need and of containing pension expenditures by governments, it also has the effect of changing the incentives of individuals to work and save. This paper examines the implications of the Australian means tested age pension for incentives of individuals to save and work, for government financial commitments and for the welfare of individuals. To this end, we develop an overlapping generations model of the Australian economy that incorporates the essential features of the Australian pension, superannuation and taxation policy settings and use it to explore the implications of several hypothetical policy changes that relax the means test of the age pension. Our results confirm that the existing means-tested, age pension represents a disincentive for some older Australians to work.

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  • Kudrna, George & Woodland, Alan, 2011. "An inter-temporal general equilibrium analysis of the Australian age pension means test," Journal of Macroeconomics, Elsevier, vol. 33(1), pages 61-79, March.
  • Handle: RePEc:eee:jmacro:v:33:y:2011:i:1:p:61-79
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    Cited by:

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    2. Cho, Sang-Wook (Stanley) & Sane, Renuka, 2013. "Means-Tested Age Pensions And Homeownership: Is There A Link?," Macroeconomic Dynamics, Cambridge University Press, vol. 17(6), pages 1281-1310, September.
    3. George Kudrna, 2016. "Australia’s Retirement Income Policy: Means Testing and Taxation of Pensions," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(01), pages 03-09, May.
    4. Börsch-Supan, A. & Härtl, K. & Leite, D.N., 2016. "Social Security and Public Insurance," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 781-863, Elsevier.
    5. Kudrna, George, 2016. "Economy-wide effects of means-tested pensions: The case of Australia," The Journal of the Economics of Ageing, Elsevier, vol. 7(C), pages 17-29.
    6. Emily Dabbs & Cagri Kumru, 2016. "How Well Does the Australian Aged Pension Provide Social Insurance?," Australian Economic Papers, Wiley Blackwell, vol. 55(3), pages 192-211, September.
    7. Bishnu, Monisankar & Guo, Nick L. & Kumru, Cagri S., 2019. "Social security with differential mortality," Journal of Macroeconomics, Elsevier, vol. 62(C).
    8. Fehr, Hans & Uhde, Johannes, 2014. "Means-testing and economic efficiency in pension design," Economic Modelling, Elsevier, vol. 44(S1), pages 57-67.
    9. Alexeev, Sergey, 2020. "The role of imputed rents in intergenerational income mobility in three countries," Journal of Housing Economics, Elsevier, vol. 49(C).
    10. George Kudrna, 2015. "Means Testing of Public Pensions: The Case of Australia," Working Papers wp338, University of Michigan, Michigan Retirement Research Center.
    11. Hans Fehr & Johannes Uhde, 2013. "On the optimal design of pension systems," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 40(3), pages 457-482, August.
    12. Kudrna, George & Tran, Chung, 2018. "Comparing budget repair measures for a small open economy with growing debt," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 162-183.
    13. Tran, Chung & Woodland, Alan, 2014. "Trade-offs in means tested pension design," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 72-93.
    14. Rafal Chomik & John Piggott, 2012. "Pensions, Ageing and Retirement in Australia: Long-Term Projections and Policies," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 45(3), pages 350-361, September.
    15. George Kudrna & Chung Tran & Alan Woodland, 2018. "Sustainable and Equitable Pensions with Means Testing in Aging Economies," ANU Working Papers in Economics and Econometrics 2018-666, Australian National University, College of Business and Economics, School of Economics.
    16. George Kudrna, 2016. "Australia’s Retirement Income Policy: Means Testing and Taxation of Pensions," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(1), pages 03-09, 05.
    17. Andréasson, Johan G. & Shevchenko, Pavel V. & Novikov, Alex, 2017. "Optimal consumption, investment and housing with means-tested public pension in retirement," Insurance: Mathematics and Economics, Elsevier, vol. 75(C), pages 32-47.
    18. Kudrna, George & Tran, Chung & Woodland, Alan, 2019. "Facing Demographic Challenges: Pension Cuts Or Tax Hikes?," Macroeconomic Dynamics, Cambridge University Press, vol. 23(2), pages 625-673, March.
    19. George Kudrna & Chung Tran, 2015. "Budget Repair Measures: Tough Choices for Australia's Future," ANU Working Papers in Economics and Econometrics 2015-628, Australian National University, College of Business and Economics, School of Economics.
    20. Woodland, A., 2016. "Taxation, Pensions, and Demographic Change," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 713-780, Elsevier.
    21. Fehr, Hans & Uhde, Johannes, 2012. "Optimal Pension Design in General Equlibrium," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62024, Verein für Socialpolitik / German Economic Association.
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