The IMF Working Papers series is designed to make IMF staff research available to a wide audience. With nearly 300 released each year, working papers cover a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Hong 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.