Lex Meijdam (Department of Economics and CentER, Tilburg University, PO Box 90153, 5000 LE Tilburg, The Netherlands) Harrie A. A. Verbon (Department of Economics and CentER, Tilburg University, PO Box 90153, 5000 LE Tilburg, The Netherlands)
Abstract
In this paper decision making on public pensions in a representative democracy is modeled within the framework of the well-known two-overlapping-generations (OLG) general-equilibrium model with rational expectations. The model is used to analyze the effects of aging on the economy in general and on the evolution of public pension schemes in particular, where aging is interpreted as a combination of a decrease in the rate of population growth and an increase in the political influence of pensioners. Analytical results are derived for the long run as well as for the short run by the method of comparative statics and comparative dynamics respectively. It appears that an increase in transfers to the old is not guaranteed if due to aging their political power increases. JEL classification: J14, H55
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Find related papers by JEL classification: J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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