Implications of the 2009 Age Pension Reform in Australia: A Dynamic General Equilibrium Analysis
Abstract
In the 2009/2010 budget, the Australian government announced a major reform of the Australian pension system. Using a dynamic, general equilibrium model, we simulate the implications of the major changes of the reform: a higher maximum pension rate, changes to the income means test and an increase in the eligibility age. The simulation results show positive long-run effects of the reform on labour supply, output, consumption and the capital stock as well as reduced pension expenditures. The reform generates large short-run welfare gains for older generations of low- and middle-income households due primarily to the increased maximum pension. The reform is potentially Pareto improving, yielding a small aggregate efficiency gain.
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