Worldwide, dependency ratios are forecast to increase dramatically in the next 50 years. A great deal of attention has been devoted to understanding the changes in fiscal policies that must' take place to accommodate these changes. In contrast, less effort has been concentrated on studying the fiscal shifts that will endogenously result from demographic pressures. An example of particular interest is the degree to which a more elderly population will support public spending for education. We use an overlapping-generations model to investigate the effect of this demographic transition on the endogenous determination of public spending for education. A demographic transition alters the identity of the median voter, leading to a preference for less education spending. If the public sector is inefficiently small, demographic transition exacerbates the underprovision of human capital. Alternatively, such a shift may trim an inefficiently large government, reduce tax rates and raise capital per worker enough to raise education spending. Thus, there is no automatic link between demographic transition and reduced support for those programs whose benefits are concentrated among the young.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
7762.
Length: Date of creation: Jun 2000 Date of revision: Publication status: Published as "Stoking the Fires? CO2 Emissions and Economic Growth", Journal of Public Economics, Vol. 57, no. 1 (1995): 85-101. Published as "Demographics, Political Power and Economic Growth", PF, Vol. 48 (1993, Supp): 349-365. Published as "Solow and States: Capital Accumulation, Productivity, and Economic Growth", National Tax Journal, Vol. 46, no. 4 (1993): 425-439. Handle: RePEc:nbr:nberwo:7762
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Find related papers by JEL classification: E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
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