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WP 98 - The graying of the median voter

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  • David Hollanders

    ()
    (Amsterdams Instituut voor ArbeidsStudies , Universiteit van Amsterdam)

  • Ferry Koster

    ()
    (Sociology, Erasmus University Rotterdam / AIAS / Leiden Law School)

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    Abstract

    Analyzing 30 OECD-countries in 1980-2005, this paper documents the association of an aging electorate with retirement spending. The fi rst result is that an increase in the age of the median voter of one year is associated with an increase of 0.25 percentage points in retirement spending relative to GDP. The second result is that aging does not lead to higher benefi ts per retiree. Both results also hold for health care costs, which are frequently assumed to be positively associated with aging as well. Together, the results contradict the main prediction of median voter models that imply that an older median voter successfully pushes for higher individual benefi ts. If anything, a graying median voter is associated with less generous pensions. These results are reinforced when health care costs are considered with a time trend proxying for technological change. Absent a time trend, health care costs –both relative to GDP and per inhabitant– are positively infl uenced by the age of the median voter. JEL classifi cation: C23; H55; J18 Key words: aging; retirement; political economy *Nederlandse samenvatting (Dutch summary)* Deze studie onderzoekt de relatie tussen vergrijzing en pensioenuitgaven in 30 OECD-landen voor de periode 1980 en 2005. Ten eerste blijkt dat een toename van de leeftijd van de mediane kiezer met een jaar gerelateerd is aan een 0.25 procentpunt hogere pensioenuitgaven als deel van het BNP. Ten tweede laat de studie zien dat vergrijzing niet samengaat met hogere pensioenuitkeringen per gepensioneerde. Beide resultaten gaan ook op voor kosten voor de gezondheidszorg, waarvan ook vaak wordt verondersteld dat zij samengaan met vergrijzing. Samengenomen betekent dit dat geen steun wordt gevonden voor de voorspelling dat oudere kiezers in staat zijn pensioenuitgaven te verhogen, zoals verondersteld wordt in mediane kiezer modellen. In plaats daarvan gaat de vergrijzende kiezer samen met mindere genereuze pensioenen. Het toevoegen van een tijdtrend als controle voor de invloed van technologische verandering op gezondheidskosten is cruciaal: zonder deze trend zijn gezondheidszorguitgaven –zowel als deel van het BNP als per inwoner– wel positief gerelateerd aan de leeftijd van de mediane kiezer.

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    Bibliographic Info

    Paper provided by AIAS, Amsterdam Institute for Advanced Labour Studies in its series AIAS Working Papers with number wp98.

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    Date of creation: Sep 2010
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    Handle: RePEc:aia:aiaswp:wp98

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    1. Friedrich Breyer & Ben Craig, 1995. "Voting on social security: evidence from OECD countries," Working Paper 9511, Federal Reserve Bank of Cleveland.
    2. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, vol. 18(1), pages 1-29, March.
    3. Vincenzo Galasso, 2006. "The Political Future of Social Security in Aging Societies," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072734, January.
    4. Friedrich Breyer & Klaus Stolte, 2001. "Demographic change, endogenous labor supply and the political feasibility of pension reform," Journal of Population Economics, Springer, vol. 14(3), pages 409-424.
    5. Cooley, T.F. & Soares, J., 1996. "Will Social Security Survive the Baby Boom?," Papers 96-01, Rochester, Business - General.
    6. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-88, September.
    7. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
    8. BOLDRIN, Michele & RUSTICHINI, Aldo, 1994. "Equilibria with Social Security," CORE Discussion Papers 1994060, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    9. Castles, Francis G., 2004. "The Future of the Welfare State: Crisis Myths and Crisis Realities," OUP Catalogue, Oxford University Press, number 9780199273928.
    10. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
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