Essays in Empirical Policy Evaluation: COVID-19 fiscal policy and the early release of superannuation

Abstract

This thesis provides the first detailed evaluation of the Australian government's decision in March 2020 to permit the early release of up to $20,000 in lump sum withdrawals from people's superannuation (private pension) accounts. It makes several contributions to economic literature. First, we detail the broad scope and extensive level of support supplied by major Australian COVID-19 transfers (wage subsidy, supplemented unemployment payments and lump-sum superannuation withdrawals) and outline some direct distributional dimensions to the actions. The analysis serves to highlight important macroeconomic trade offs that were implicit in Australia's pandemic fiscal strategy, and asks: at what point governments can 'too much of a good thing' with crisis payments? Second, we focus on how superannuation withdrawal affected rates of exit from unemployment payments. We study a population of half-a-million individuals who found themselves newly on an unemployment payment in the initial months of the pandemic. We estimate that receiving a lump sum resulted in a significant delay in exit from unemployment payments, reinforcing one of the most well-established findings in empirical economics. We also observe a significant (and uncosted) corresponding increase in expenditure on outlays and find no evidence that delayed exit from unemployment payments resulted in higher wages upon return-to-work. Third, we turn to the role that the lump-sum withdrawals played in stimulating consumption. We find a high marginal propensity to spend of at least 0.43 within eight weeks, spread broadly across spending categories (including around half or more on non-durables) and across withdrawers. We calibrate a heterogeneous-agent model, demonstrating that only under present bias (B = 0.58) can we reconcile the observed magnitude and frequency of the spending response and pre-withdrawal saving behaviour. The program therefore presents a sharp trade-off between effective macroeconomic stimulus and suboptimal retirement saving policy. Finally, we detail how the extraordinary level of fiscal response during COVID-19 has put pressure on an Australian tax system under strain from long-term structural forces and the tax-free and tax-reduced status of certain sources of income. Ultimately, comprehensive reform will be needed. Show more