An overlapping generations model to investigate the fiscal implications of New Zealand's ageing population

New Zealand’s population is ageing. Public spending on public pensions (NZ Superannuation) and health are particularly sensitive to this trend and are expected to increase accordingly. Current and future government policies aimed at addressing this challenge will not only influence macroeconomic outcomes and growth, but also generate distributional effects both within and across generations. This paper constructs an overlapping generations (OLG) model for New Zealand to analyse these issues. We show that the model replicates both macroeconomic and fiscal moments for the New Zealand economy. We then approximate Stats NZ’s median demographic projections to trace the rising trajectory of government expenditures driven by population ageing. The model suggests that significant policy adjustments will be required regardless of the rate of technological progress, and that more favourable demographic scenarios offer only partial and temporary relief. This paper forms part of a series of papers using Treasury’s OLG model to investigate the fiscal impacts of New Zealand’s ageing population. Other papers in the series look at the implications of tax and debt financing demographics-driven increases in health and pension spending, and the savings from pension reforms and spending restraint, amongst other issues.