Population aging is occurring around the world, presenting a number of policy challenges. Most notably, it will increase dependency ratios, making it more difficult for governments to support their older populations. As a result, tax policy will need to be changed in ways that result in more revenues collected, including strengthening tax incentives for work and reducing features that distort business decisions. Population aging also means that more people will be at risk of hardship because of limited financial resources in retirement, implying that tax systems should be changed in ways that better encourage retirement saving. Finally, the lower interest rates that have resulted in part from population aging and the resulting complications for monetary policy mean that governments would also be well served by changing tax systems to include more automatic stabilizers.
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The Medicaid program plays an important role for older lower-income households; for example, Medicaid pays long-term care costs for 6 out of 10 nursing home residents in the United States (Kaiser Foundation 2017).
See Organization for Economic Cooperation and Development (2014) for an assessment of how much fiscal consolidation will be needed in various OECD countries to keep government debt at sustainable levels.
The CBO’s projection was done before the passage of the Tax Cuts and Jobs Act in December 2017. Page et al. (2017) estimate that the Act will raise projected debt levels by an additional 5 percentage points of GDP by 2027 (incorporating the dynamic feedback of the macroeconomy).
Best practices in this area include defaulting workers into plans with sensible contribution rates and choices of investment accounts (with the option to change all of these selections if they desire).
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Dynan, K. Adapting tax systems for population aging. Bus Econ 53, 66–71 (2018). https://doi.org/10.1057/s11369-018-0070-8
- Fiscal sustainability
- Tax systems
- Retirement saving
- Tax incentives