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The Aging Population and the Size of the Welfare State

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  • Assaf Razin
  • Efraim Sadka
  • Phillip Swagel
Abstract
Data for the United States and countries in western Europe indicate a negative correlation between the dependency ratio and labor tax rates and the generosity of social transfers, after other factors that influence the size of the welfare state are controlled for. This occurs despite the increased political clout of the dependent population implied by the aging of the population. This paper develops an overlapping generations model of intra- and intergenerational transfers (including old-age social security) and human capital formation that addresses this seeming puzzle. We show that with democratic voting, an increase in the dependency ratio can lead to lower taxes or less generous social transfers.

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  • Assaf Razin & Efraim Sadka & Phillip Swagel, 2002. "The Aging Population and the Size of the Welfare State," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 900-918, August.
    • Handle: RePEc:ucp:jpolec:v:110:y:2002:i:4:p:900-918
    DOI: 10.1086/340780
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    References listed on IDEAS

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    1. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1.
    2. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659, Elsevier.
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    6. Assaf Razin & Efraim Sadka & Phillip Swagel, 2002. "The Aging Population and the Size of the Welfare State," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 900-918, August.
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    JEL classification:

    • H0 - Public Economics - - General

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