Ageing and the Skew Risk in Collective Choices

Oecd countries enjoy a complex system of welfare programs and regulations, which provides redistributive transfers across different generations. Yet, their design and dimensions largely differ. How will these different models react to the aging process? Aging reduces the return from payg pension systems, but increases the political power of the elderly. The overall effect on the policy-maker decisions is likely to lead to more overall pension spending, although pension per capita may have to be reduced and workers will have to retire later. Yet, the impact on the state regulation of the economy should not be overlooked. An increasing share of elderly individuals will increase the pressure for product market reforms, which lead to lower prices, and thereby to an increase in the purchasing power of their pension transfer. No effect of aging can be instead appreciated on labor market reforms. These suggest that the Southern European system based on large pension spending and rigid labor and product markets is less suited to deal with population aging.