Taiwan’s Rapid Demographic Shift: Examining the Long-run Impact of Population Ageing on Income Inequality

Abstract

Taiwan distinguishes itself as one of the few Asian countries to experience demographic transition ahead of projections. Understanding how Taiwan’s rapidly evolving age demographics affect income inequality is crucial. Analyzing income inequality with three distinct metrics, we examine the relationship between population ageing and income inequality in Taiwan, using the augmented autoregressive distributed lag test. Our study reveals an inverse relationship, indicating reduced income inequality as the population ages. Factors such as elderly property acquisition, cultural norms favouring families to live together, and advancements in healthcare contribute to this trend. Encouraging elderly employment emerges as a crucial strategy to address income inequality among seniors. Additionally, economic factors like real gross domestic product per capita and trade openness show negative associations with income inequality, suggesting policy avenues for intervention. While outward foreign direct investment is positively associated with income inequality, promoting inclusive growth-focused foreign direct investment could help mitigate this issue. Overall, policies supporting economic growth and international trade hold promise for reducing income inequality in Taiwan.