Fiscal sustainability and demographic change: a micro-approach for 27 EU countries

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S Fiscal Sustainability andIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. The effect of demographic change on the labor force and on fiscal revenues is topical in light of potential pension shortfalls. This paper evaluates the effect of demographic changes between 2010 and 2030 on labor force participation and government budgets in the EU-27. Our analysis involves the incorporation of population projections, and an explicit modeling of the supply and demand side of the labor market. Our approach overcomes a key shortcoming of most existing studies that focus only on labor supply when assessing the effects of policy reforms. Ignoring wage reactions greatly understates the increase in fiscal revenues, suggesting that fiscal strain from demographic change might be less severe than currently perceived. Finally, as a policy response to demographic change and worsening fiscal budgets, we simulate the increase in the statutory retirement age. Our policy simulations confirm that raising the statutory retirement age can balance fiscal budgets in the long run.JEL Classification: H68, J11, J21

Distributional and revenue effects of a tax shift from labor to property

“…Unlike computable general equilibrium (CGE) approaches, the only assumptions we impose concern our proposed reform scenarios, or the elasticity of labor supply. Our approach is in the spirit of recent research, for instance on fiscal sustainability (Dolls et al 2017), income distribution analysis (Bargain et al 2015), or mortgage interest deductibility . Thus, we follow well-established simulation techniques using EUROMOD, allowing for inferences about the distributional and revenue effects of a tax shift from labor to property.…”

Demographic change and income tax revenue in Germany: a microsimulation approach

“…This development would have implications for the social security system, which are discussed and simulated in the literature on a broad scale (e.g., Deutsche Bundesbank, 2016; Kochskämper, 2016). An increase in the number of people in retirement combined with a decline of the working population will naturally put pressure on pay-as-you-go systems like the German statutory pension system or the health system (Dolls et al, 2015).…”

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“…This development would have implications for the social security system, which are discussed and simulated in the literature on a broad scale (e.g., Deutsche Bundesbank, 2016; Kochskämper, 2016). An increase in the number of people in retirement combined with a decline of the working population will naturally put pressure on pay-as-you-go systems like the German statutory pension system or the health system (Dolls et al, 2015). The relationship between demographic change and tax revenue has been rather disregarded in the literature, with few exceptions (e.g., Decoster, Flawinne and Vanleenhove, 2014).…”