Population Aging, Tax Burden and Fiscal sustainability——Theory and Empirical Evidence from China
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| Title | Population Aging, Tax Burden and Fiscal sustainability——Theory and Empirical Evidence from China
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| Author | Gong Feng and Yu Jinliang |
| Organization | School of Economics and Management, Wuhan University |
| Email | 00009038@whu.edu.cn |
| Key Words | Population Aging; Commodity Tax Burden; Fiscal Sustainability; Threshold Cointegration Model |
| Abstract | This Article builds a simple two-period OLG model to discuss the relationships among Population Aging, commodity tax burden on the elderly and fiscal sustainability. The results of theoretical analysis show that, the proportion of old population has a “U-shaped” relationship between fiscal sustainability: When the commodity tax burden on old population falls below a certain critical point, population aging is harmful to fiscal sustainability; When the commodity tax burden on old population exceeds the critical point, population aging has a positive influence on fiscal sustainability. Based on China's 1981-2012 time series data, this article builds a threshold cointegration model to test the “U-shaped” relationship between population aging and fiscal sustainability , in which the threshold variable is commodity tax burden of old people. This article finds that the critical point is the commodity tax burden of the elderly as a share of GDP is about 1.5%. The policy implication is that the government should raise the retirement age, support the development of aging industry and improve the level of social security in order to enhance the old people’s consumption ability and willingness, which is one of the important way to improve the fiscal sustainability in an ageing society. |
| Serial Number | WP854 |
| Time | 2015-03-31 |
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