Accounting for Population Ageing in Tax Microsimulation Modelling by Survey Reweighting

This paper investigates the use of sample reweighting in a behavioural tax microsimulation model, to examine the implications for government taxes and expenditure of population ageing in Australia. First, a calibration approach to sample reweighting is described, producing new weights which achieve specified population totals for selected variables, subject to the constraint that there are minimal adjustments to the weights. Second, the performance of the Australian Bureau of Statistics’ (ABS) weights provided with the 2001 Survey of Income and Housing Cost (SIHC) was examined and it was found that reweighting does not improve the simulation outcomes for the 2001 situation, so the original ABS weights were retained for 2001. Third, the implications of changes in the age distribution of the population were examined, based on population projections to 2050. A ‘pure’ change in the age distribution was examined by keeping the aggregate population size fixed and changing only the relative frequencies in different age-gender groups. Finally, the effects of a policy change to benefit taper rates in Australia were compared for 2001 and 2050 population weights. It is suggested that this type of exercise provides an insight into the implications of changes in the population on government income tax revenue and social security expenditure, indicating likely pressures for policy changes.