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This paper examines the potential distributional impacts of demographic change, particularly population ageing, and changes to labour force participation that are projected to arise over the next 50 years. The approach involves calibration weighting of the Treasury's microsimulation model, Taxwell, based on the New Zealand Household Economic Survey. The weights are adjusted for each projection year to ensure that a range of population aggregates (by age and gender) match the projected values provided by Statistics New Zealand. Measures of income inequality and poverty, along with the incidence of income tax, Goods and Services Tax and a number of components of government spending (namely health and education) across age groups, are obtained. The results suggest that population ageing and expected changes in labour force participation, in isolation, do not have a significant impact on population-level measures of income inequality.
Access to data used in this paper was provided by Statistics New Zealand under conditions designed to give effect to the security and confidentiality provisions of the Statistics Act 1975. The graphs presented in this report are the work of staff at the New Zealand Treasury and not Statistics New Zealand. The views, opinions, findings and conclusions are strictly those of the authors and do not necessarily reflect the views of the New Zealand Treasury. We would like to thank Bob Buckle and John MacCormick for constructive comments on an earlier version of this paper.
The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.
Table of Contents
- Executive Summary
- 1 Introduction
- 2 Long term trends
- 2.2 Labour force participation
- 3 Methodology
- 3.2 Modelling the incidence of tax and spending by age group
- 4 Population ageing, inequality and poverty
- 4.1 Income inequality
- 4.2 Poverty measures
- 5 The incidence of tax and spending by age group
- 6 Conclusion
- Appendix A: Data sources
- Appendix B: Calibrating the Household Economic Survey
- B.1 Method used to project benchmarks
- B.2 Impact of calibration
- Appendix C: Attribution logic for tax and spending incidence analysis