Population ageing and government revenue: Expected trends and policy considerations to boost revenue

David Crowe, Jörg Haas, Valentine Millot, Lukasz Rawdanowicz () and Sébastien Turban

No 1737, OECD Economics Department Working Papers from OECD Publishing

Abstract: Population ageing is expected to result in significantly higher government spending in many OECD countries in the coming decades. This paper sheds light on the macroeconomic consequences of population ageing for government revenue in a framework consistent with the OECD long-term model. If the labour and capital income shares in GDP remain constant and pension income increases in relation to GDP, the tax revenue-to-GDP ratio will increase slightly. However, this will not be enough to cover the total increase in government spending due to population ageing. If governments do not mitigate spending pressures by structural reforms or cuts in pension entitlements, they will have to boost tax revenue significantly to prevent public debt from expanding. In many countries, it will not be possible, nor advisable, to completely finance the increase in long-term spending with only one tax instrument as it would require a massive rise in the tax rate, with risks of ensuing distortions. Thus, governments will have to choose mixes of tax increases, accounting for growth, equity and political considerations. This paper reviews these considerations for several specific tax categories.

Keywords: pensions; population ageing; public finances; tax policy; tax revenue (search for similar items in EconPapers)
JEL-codes: E17 H21 H23 H24 H55 I38 J14 (search for similar items in EconPapers)
Date: 2022-12-13
New Economics Papers: this item is included in nep-age, nep-dem, nep-pbe and nep-pub
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