Population ageing and fiscal sustainability: An integrated micro- macro analysis of required tax changes
Year: 2004
Type: preprint
Abstract: :\nMost studies on the economic consequences of ageing rely on Computable General Equilibrium\n(CGE) models that account for feedback mechanisms through changes in relative prices, tax bases\netc. However, since individual labour supply behaviour is considered to be a key element in CGEanalyses\nof fiscal sustainability problems, the results of these analyses may depend crucially on how\nthe labour supply behaviour is modelled. The current practice of combining a simplified\nrepresentation of the tax and transfer system with the labour supply behaviour of a few representative\nagents may render a misleading description of incentives and revenue effects. The purpose of\nthis paper is to demonstrate the importance of using an alternative strategy by integrating a detailed\nmicroeconometric model of labour supply, that is sufficiently flexible to capture a large variety of\nlabour supply responses, with a large-scale CGE model. The integrated micro-macro CGE model is\nemployed to explore how endogenous household labour supply behaviour affects and interacts with\nsustainability problems in Norway. The empirical results suggest that the required increase in the\nfuture tax burden is less dramatic when the analysis allows for a flexible representation of the labour\nsupply behaviour. Moreover, by replacing the current progressive tax system with a flat tax system it\nis found that the pressure on future public finances is significantly reduced.
Language: English
Topic: Economic and Fiscal Studies
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
Funder: Norges Forskningsråd
OpenAlex ID: W1546010117