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The study presented in this webinar revisits optimal fiscal policies in response to population ageing by introducing an age-dependent increasing risk aversion assumption into an OLG model with risk-sensitive preferences to factor in the welfare cost of the policy-induced uncertainties.
The findings suggest that, based on future generations’ welfare, financing population ageing by either a social security benefit reduction or an extension of the retirement age may not be as strongly preferred over a payroll tax increase as prior studies have suggested because of the detrimental welfare impacts from the consequent increase in uncertainties. Varying risk aversion also emphasizes the role of precautionary savings that causes individuals to respond slightly differently to changes in demographic structures and price variables. This, in turn, influence the redistribution of life-cycle variables and transition dynamics of aggregate variables.
Phitawat Poonpolkul is a Ph.D. candidate in economics at the Centre of Applied Macroeconomics Analysis (CAMA) in Crawford School of Public Policy. He is also an ARC Centre of Excellence in Population Ageing Research (CEPAR) affiliated research student. His primary research interests are on macroeconomics and demographic changes. In particular, he researches on overlapping generation models to explain the implications of demographic changes on the macroeconomy in aspects of fiscal sustainability and asset allocation.