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Age Bias in Fiscal Policy: Why Does the Political Process Favor the Elderly?

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Author Info
Sita Nataraj Slavov () (Department of Economics, Occidental College)

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Abstract

Across countries, government expenditures tend to favor the elderly. This paper provides a political economy explanation for this phenomenon. I consider the classic problem of dividing a fixed payoff in an overlapping generations setting. Any share of the payoff can be given to any generation. Using a new solution concept for majority rule in dynamic settings (Bernheim and Nataraj, 2004), I demonstrate that policies favoring the old are easier to sustain politically than any other policies. This result appears across a broad class of majoritarian institutions and thus reflects general forces at work in the political process. Age bias arises because it is easy to induce the young to support policies favoring the elderly by promising them large rewards later in their lives. On the other hand, there is little flexibility to reward older generations in a similar manner. This asymmetry helps to generate broad political support for large public transfers to older individuals.

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File URL: http://faculty.oxy.edu/sslavov/Slavov_age_bias.PDF
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File Function: Revised version, 2006
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Publisher Info
Paper provided by Occidental College, Department of Economics in its series Occidental Economics Working Papers with number 1.

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Length: 37 pages
Date of creation: Nov 2001
Date of revision: Jan 2006
Handle: RePEc:occ:wpaper:1

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Related research
Keywords: majority rule overlapping generations age bias Condorcet winner intergenerational transfers Social Security

Other versions of this item:

Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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  3. Marco Bassetto, 1999. "Political economy of taxation in an overlapping-generations economy," Discussion Paper / Institute for Empirical Macroeconomics 133, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  4. 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. [Downloadable!] (restricted)
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  6. Casey B. Mulligan & Xavier Sala-i-Martín, 2003. "Social Security, Retirement, and the Single-Mindedness of the Electorate," Economics Working Papers 686, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  7. Krusell, Per & Rios-Rull, Jose-Victor, 1996. "Vested Interests in a Positive Theory of Stagnation and Growth," Review of Economic Studies, Blackwell Publishing, vol. 63(2), pages 301-29, April. [Downloadable!] (restricted)
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  15. Antonio Rangel, 2003. "Forward and Backward Intergenerational Goods: Why Is Social Security Good for the Environment?," American Economic Review, American Economic Association, vol. 93(3), pages 813-834, June. [Downloadable!]
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  21. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January. [Downloadable!] (restricted)
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  1. Poutvaara, Panu, 2004. "On the Political Economy of Social Security and Public Education," IZA Discussion Papers 1408, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Mehmet Serkan Tosun & Claudia Williamson & Pavel Yakovlev, 2007. "Population Aging, Elderly Migration and Education Spending: Intergenerational Conflict Revisited," Working Papers 07-003, University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics. [Downloadable!]
  3. Casey B. Mulligan & Ricard Gil & Xavier Sala-i-Martin, 2002. "Social Security and democracy," Discussion Papers 0102-63, Columbia University, Department of Economics. [Downloadable!]
    Other versions:
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