Guarding Against Fiscal Risks in Hong Kong SARHong Kong SAR's government faces the dual challenges of volatile revenue and medium term spending pressures arising from a rapidly aging population. Age-related spending pressures raise long-run sustainability concerns, while revenue volatility creates risks to service provision, possibly entailing sudden tax changes, or even requiring new borrowing. After describing the risks associated with aging, the paper uses value at risk techniques to measure the value of the unanticipated risks posed by volatile revenue. The paper also describes the self-insurance value of Hong Kong SAR's traditionally high fiscal savings (reserves), and the impact alternate policy choices could have on revenue volatility. |
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20 percent Adrogué age-related fiscal pressures aging population assumed average bootstrap estimates borrow Brownian motion Coefficient of Variation confidence level consumption tax cost desired insurance Desired Insurance/Revenue discussed distortionary equivalent European option expenditure financing fiscal accounts fiscal environment fiscal outcomes fiscal reserves Fixed Investment Return fixed returns government spending GST Rate healthcare historical patterns hold net assets Hong Kong SAR impact implicit market value India Hong Kong indirect tax revenue Indonesia India Hong insurance provided Kong SAR Australia Kong SAR's fiscal market insurance markets are incomplete Monte Carlo method Monte Carlo simulations Moving Block Bootstrap Nonetheless Optimal Fiscal Policy paper percent of GDP percentage points points of GDP policy choices prudential reserves put option rate of return reduce fiscal risks reduction in fiscal revenue base revenue-to-GDP risk factors self-insurance services tax share of GDP significant Stationary Bootstrap Tax policy changes underlying Value at Risk variance Variance Reduction volatile revenue