Demographic transition, intergenerational transfers and the increase in public and national debts

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Demographic transition, intergenerational transfers and the increase in public and national debts

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Jean-Pierre Laffargue

Abstract

This paper investigates time consistent policies and reforms of intergenerational transfers. If the weight the Government gives to the living elderly is low enough, successive Governments will implement policies with equitable results across generations, even if their social welfare function is not equitable with the unborn. The ratio of Government public debt to GDP will not change over time, and the consumption flows of successive generations will grow at the natural rate of the economy. However, if the Government gives a higher weight to the elderly, the ratio of public debt to GDP will increase over time. Then, future generations will have to pay higher and higher taxes and consume less and less. Demographic transition does not interfere with these results although it makes every consumer poorer. However, there is the possibility that the weight of the elderly in Government preferences has increased recently, and that some Western democracies are entering a process of increasing public indebtedness and immiserisation of future generations.

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Paper provided by PSE (Ecole normale supérieure) in its series PSE Working Papers with number 2005-15.

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Date of creation: 2005
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Handle: RePEc:pse:psecon:2005-15

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This paper has been announced in the following NEP Reports:

NEP-ALL-2005-07-11 (All new papers)
NEP-PBE-2005-07-11 (Public Economics)

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Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier. [Downloadable!] (restricted)
Martin Feldstein, 2005. "Structural Reform of Social Security," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 33-55, Spring. [Downloadable!] (restricted)
Martin Feldstein, 2005. "Structural Reform of Social Security," NBER Working Papers 11098, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

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This page was last updated on 2008-11-18.

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