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The impact of an aging U.S. population on state tax revenues

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  • Alison Felix
  • Kate Watkins

Abstract

As the baby boom generation retires, the nation?s labor force participation rate is expected to decline. And since most people earn less and spend less during retirement, the aging of the U.S. population will likely reduce income and sales tax revenue per capita for state governments. Felix and Watkins draw from data on different age groups? earning and spending patterns to assess how projected changes in the age distribution across the American population are likely to affect earning and spending?and therefore state revenue from income taxes and sales taxes. They find that demographic change will have a significant impact. Had the population?s age composition in 2011 already resembled what is projected for 2030?that is, having a greater proportion of retirees?state tax revenue would have been reduced by $8.1 billion, or 1.1 percent.

Suggested Citation

  • Alison Felix & Kate Watkins, 2013. "The impact of an aging U.S. population on state tax revenues," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 95-127.
    • Handle: RePEc:fip:fedker:00002
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    1. Congressional Budget Office, 2013. "Rising Demand for Long-Term Services and Supports for Elderly People," Reports 44363, Congressional Budget Office.
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    Cited by:

    1. Cylus, Jonathan & Williams, Gemma & Carrino, Ludovico & Roubal, Tomas & Barber, Sarah, 2022. "Population ageing and health financing: A method for forecasting two sides of the same coin," Health Policy, Elsevier, vol. 126(12), pages 1226-1232.
    2. Butler, Alexander W. & Yi, Hanyi, 2022. "Aging and public financing costs: Evidence from U.S. municipal bond markets," Journal of Public Economics, Elsevier, vol. 211(C).
    3. Prammer, Doris, 2019. "How does population ageing impact on personal income taxes and social security contributions?," The Journal of the Economics of Ageing, Elsevier, vol. 14(C).
    4. Alena Andrejovska & Veronika Pulikova, 2018. "Tax Revenues in the Context of Economic Determinants," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 14(1), pages 133-141.

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