Finances of the Nation: Mitigating the Economic Impacts of Population Aging on Growth and Public Revenues—Can the Tax Mix Help?

Abstract

In this article, the authors address concerns about the impact that the aging of Canada's population over the coming decades could have on economic growth and, consequently, growth in government revenues. They explore how revenue-neutral changes in the tax mix today could mitigate those concerns and raise more revenue than is projected in current forecasts with a status-quo scenario. Using data for Quebec, the authors show that a shift in the relative share of total revenues from personal income taxes to consumption taxes could be quite effective over the next four decades. A revenue-neutral shift equivalent to 1 percent of the province's consumption tax revenues today would result in an increase in revenues ranging between 0.3 percent and 1.0 percent by 2060, while a shift equivalent to 25 percent of consumption tax revenues would generate additional revenues of 1.4 percent to 4.8 percent.