This paper quantitatively investigates the sustainability of the universal health
coverage (UHC) system in Thailand while taking into account the countrys rapidly
aging population and large informal labor sector. We examine the effects of population
aging and informal employment across three tax options for financing the UHC.
A modern dynamic general equilibrium framework is utilized to conduct policy experiments
and welfare analysis. In the case of using labor income tax to finance the
cost of UHC, an additional 11-15% of labor tax will be required with the 2050 population
age structure, compared with the 2005 benchmark economy. We also find that
an expansion of income tax base to the informal sector (formalization) can substantially
alleviate the tax burden. Based on welfare comparisons across the alternative
tax options, the labor income tax is the most preferred due to the existence of a large
informal labor sector. If the informal sector cannot avoid labor income tax, capital
tax will be preferred over labor and consumption taxes.