Adapting Tax Systems for Population Aging

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.