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

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  • Sita Nataraj Slavov

    ()
    (Department of Economics, Occidental College)

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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Bibliographic 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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Keywords: majority rule; overlapping generations; age bias; Condorcet winner; intergenerational transfers; Social Security;

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References

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  1. B. Douglas Bernheim & Sita Nataraj Slavov, 2007. "A Solution Concept for Majority Rule in Dynamic Settings," Discussion Papers 07-029, Stanford Institute for Economic Policy Research.
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Citations

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Cited by:
  1. B. Douglas Bernheim & Sita Nataraj Slavov, 2007. "A Solution Concept for Majority Rule in Dynamic Settings," Discussion Papers 07-029, Stanford Institute for Economic Policy Research.
  2. Panu Poutvaara, 2001. "On the Political Economy of Social Security and Public Education," CESifo Working Paper Series 424, CESifo Group Munich.
  3. Xavier Sala-i-Martin, 2002. "Social security and democracy," Economics Working Papers 621, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Roger Lagunoff, 2005. "Markov Equilibrium in Models of Dynamic Endogenous Political Institutions," Game Theory and Information 0501003, EconWPA.
  5. Tosun, Mehmet S. & Williamson, Claudia R. & Yakovlev, Pavel, 2009. "Population Aging, Elderly Migration and Education Spending: Intergenerational Conflict Revisited," IZA Discussion Papers 4161, Institute for the Study of Labor (IZA).

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