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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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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 110 (2002)
Issue (Month): 4 (August)
Pages: 900-918

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Handle: RePEc:ucp:jpolec:v:110:y:2002:i:4:p:900-918

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  1. 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.
  2. Wildasin, D.E., 1992. "Income Restribution and Migration," Papers 92-003, Indiana - Center for Econometric Model Research.
  3. Jacob Frenkel & Assaf Razin & Efraim Sadka, 1991. "International Taxation in an Integrated World," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512149, December.
  4. Alesina, Alberto & Wacziarg, Romain, 1998. "Openness, country size and government," Journal of Public Economics, Elsevier, vol. 69(3), pages 305-321, September.
  5. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-91, September.
  6. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
  7. Saint-Paul, G., 1993. "Unemployment, Wage Rigidity, and the Returns to Education," DELTA Working Papers 93-11, DELTA (Ecole normale supérieure).
  8. Assaf Razin & Efraim Sadka, 1998. "Migration and Pension," NBER Working Papers 6778, National Bureau of Economic Research, Inc.
  9. Torsten Persson & Guido Tabellini, . "Political Economics and Public Finance," Working Papers 149, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  10. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR & CES & MSH, vol. 15(30), pages 47-104, 04.
  11. Michael Lovell, 1975. "The collective allocation of commodities in a democratic society," Public Choice, Springer, vol. 24(1), pages 71-92, December.
  12. Casey B. Mulligan, 2000. "Induced Retirement, Social Security, and the Pyramid Mirage," NBER Working Papers 7679, National Bureau of Economic Research, Inc.
  13. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  14. Razin, Assaf & Sadka, Efraim, 1995. "Resisting Migration: Wage Rigidity and Income Distribution," American Economic Review, American Economic Association, vol. 85(2), pages 312-16, May.
  15. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, July.
  16. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  17. Mendoza, Enrique G. & Milesi-Ferretti, Gian Maria & Asea, Patrick, 1997. "On the ineffectiveness of tax policy in altering long-run growth: Harberger's superneutrality conjecture," Journal of Public Economics, Elsevier, vol. 66(1), pages 99-126, October.
  18. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
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