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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. 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.
  3. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1.
  4. 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.
  5. Saint-Paul, G., 1993. "Unemployment, Wage Rigidity, and the Returns to Education," DELTA Working Papers 93-11, DELTA (Ecole normale supérieure).
  6. 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.
  7. 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, January.
  8. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-56, August.
  9. 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.
  10. 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.
  11. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  12. Efraim Sadka & Assaf Razin, 1998. "Migration and Pension," IMF Working Papers 98/165, International Monetary Fund.
  13. Razin, A. & Sadka, E., 1992. "Resisting Migration: Wage Rigidity and Income Redistribution," Papers 28-94, Tel Aviv.
  14. Alesina, Alberto & Wacziarg, Romain, 1998. "Openness, country size and government," Journal of Public Economics, Elsevier, vol. 69(3), pages 305-321, September.
  15. 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.
  16. Michael Lovell, 1975. "The collective allocation of commodities in a democratic society," Public Choice, Springer, vol. 24(1), pages 71-92, December.
  17. Casey B. Mulligan, 2000. "Induced Retirement, Social Security, and the Pyramid Mirage," NBER Working Papers 7679, National Bureau of Economic Research, Inc.
  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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