How does population ageing impact on personal income taxes and social security contributions

Abstract This paper analyses the impact of population ageing on income tax revenues and social security contributions for Austria. A static analysis focusing only on ageing - based on three population scenarios from the literature – leads to declining per capita income tax revenues and social security contributions of up to ten percent. However, a dynamic analysis combining the population scenarios with long run scenarios, that assume growing real wages and pension benefits, leads to increasing per capita income tax revenues and social security contributions. The findings of the dynamic analysis are driven by three factors: First and most importantly, by increasing wage and pension benefits. Second, by population growth that counteracts negative per capita effects of ageing on overall revenues. Third, new status-specific estimates of tax elasticities utilizing micro-data and quantile regression also explain 1/6 th of the observed increase.