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The Dynamic Fiscal Effects of Demographic Shift: The Case of Australia

Family enjoying life

George Kudrna, Chung Tran and Alan Woodland

In this paper we develop an overlapping generations (OLG) model that incorporates non-stationary demographic transition paths to study the dynamic fiscal effects of demographic shift in Australia. Our main results are summarised as follows. First, demographic shift results in lower per capita output and increased capital outflows. Second, the changes in demographic structure lead to a shift in the tax base from labor income to capital income and consumption. Third, there are substantial increases in old-age related expenditures including health, aged care and pensions.

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