Population ageing and sustainable fiscal policy in Czechia

Abstract

The substantial ageing impact projected by the Eurostat motivates this research for the case of the Czech Republic. The study assists policymakers by analysing fiscal-policy measures to stabilize ageing impact on the income and the well-being; and motivates fiscal authorities to utilize an extended version of the Czech Ministry of Finance model for the demographic agenda. The examined fiscal measures consist of postponing retirement, increasing pensions, and reducing social-security payments. The simulation outcome reveals reducing social-security payments as the only fiscal policy that would maintain both labour income and well-being unaltered in the presence of ageing. The study continues by proposing a policy mix to mitigate the subsequent government deficit. The policy mix consists of increasing the VAT tax rate and decreasing pensions and other transfers. In conclusion, the reduction of the social security payments financed by the suggested policy mix would support individuals’ responsibility for their future income while motivating them towards higher productivity during their younger years.