Overlapping Generation Australia Model (OLGA) – Economy Wide Impacts of Fertility Rate Decline in Australia

Nicola Neilsen, Commonwealth Treasury
Michael Bathgate, Commonwealth Treasury

The decline in the fertility rate is one of the driving factors behind population ageing in Australia. Australia’s fertility rate has been falling since the 1970’s and is projected to decline further (Australian Government 2023). Population ageing has significant economic implications. Declining births can result in future labour market shortages, reduction in the tax base and productive capacity as older workers retire and fewer workers enter the labour force. Understanding the economic implications of lower fertility rates requires understanding of both behavioural responses of households and changes in the composition of population in a general equilibrium framework that facilitates investigation of both direct and indirect impacts on the economy. In this analysis we investigate the long-run economic implications of reduction in fertility rate, using the Department of Treasury overlapping generation model of Australian economy (OLGA). This posters results show that the Australian government’s fiscal strategy in response to lower fertility matters. When government is faced with revenue reduction, due to a decline in births, active fiscal policy or reduction in government consumption will lead to different macroeconomic results in the long run.

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