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

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  • Slavov Sita Nataraj

    (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 Slavov, 2006), I demonstrate that policies favoring the old are easier to sustain politically than 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, older generations cannot be rewarded in a similar manner. This asymmetry helps to generate broad political support for large transfers to older individuals.

Suggested Citation

  • Slavov Sita Nataraj, 2006. "Age Bias in Fiscal Policy: Why Does the Political Process Favor the Elderly?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-37, October.
    • Handle: RePEc:bpj:bejtec:v:topics.6:y:2006:i:1:n:11
    DOI: 10.2202/1534-598X.1279
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    Cited by:

    1. Mehmet S. Tosun, 2015. "Retiree migration and intergenerational conflict," IZA World of Labor, Institute of Labor Economics (IZA), pages 118-118, January.
    2. B. D. Bernheim & S. N. Slavov, 2009. "A Solution Concept for Majority Rule in Dynamic Settings," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(1), pages 33-62.
    3. Panu Poutvaara, 2006. "On the political economy of social security and public education," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(2), pages 345-365, June.
    4. Roger Lagunoff, 2005. "Markov Equilibrium in Models of Dynamic Endogenous Political Institutions," Game Theory and Information 0501003, University Library of Munich, Germany.
    5. Mulligan Casey B & Gil Ricard & Sala-i-Martin Xavier X, 2010. "Social Security and Democracy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-46, March.
    6. Karen Smith Conway & Jonathan C. Rork, 2008. "Income Tax Preferences for the Elderly," Public Finance Review, , vol. 36(5), pages 523-562, September.
    7. Sita Nataraj Slavov, 2014. "Public Versus Private Provision of Public Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(2), pages 222-258, April.

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