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The Aging Population and the Size of the Welfare State

  • Assaf Razin
  • Efraim Sadka
  • Phillip Swagel

Data for the United States and countries in western Europe indicate a negative correlation between the dependency ratio and labor tax rates and the generosity of social transfers, after other factors that influence the size of the welfare state are controlled for. This occurs despite the increased political clout of the dependent population implied by the aging of the population. This paper develops an overlapping generations model of intra- and intergenerational transfers (including old-age social security) and human capital formation that addresses this seeming puzzle. We show that with democratic voting, an increase in the dependency ratio can lead to lower taxes or less generous social transfers.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 110 (2002)
Issue (Month): 4 (August)
Pages: 900-918

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Handle: RePEc:ucp:jpolec:v:110:y:2002:i:4:p:900-918
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  1. Wacziarg, Romain & Alesina, Alberto, 1998. "Openness, Country Size and Government," Scholarly Articles 4553014, Harvard University Department of Economics.
  2. Assaf Razin & Efraim Sadka & Phillip Swagel, 2002. "The Aging Population and the Size of the Welfare State," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 900-918, August.
  3. Jacob Frenkel & Assaf Razin & Efraim Sadka, 1991. "International Taxation in an Integrated World," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061430, June.
  4. Torsten Persson & Guido Tabellini, 1999. "Political Economics and Public Finance," NBER Working Papers 7097, National Bureau of Economic Research, Inc.
  5. Asea, Patrick & Mendoza, Enrique G & Milesi-Ferretti, Gian Maria, 1996. "On the Ineffectiveness of Tax Policy in Altering Long- Run Growth: Harberger's Superneutrality Conjecture," CEPR Discussion Papers 1378, C.E.P.R. Discussion Papers.
  6. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-91, September.
  7. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  8. repec:oup:qjecon:v:98:y:1983:i:3:p:371-400 is not listed on IDEAS
  9. Assaf Razin & Efraim Sadka, 1998. "Migration and Pension," NBER Working Papers 6778, National Bureau of Economic Research, Inc.
  10. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
  11. Razin, A. & Sadka, E., 1992. "Resisting Migration: Wage Rigidity and Income Redistribution," Papers 28-94, Tel Aviv.
  12. repec:oup:restud:v:38:y:1971:i:114:p:175-208 is not listed on IDEAS
  13. Wildasin, D.E., 1992. "Income Restribution and Migration," Papers 92-003, Indiana - Center for Econometric Model Research.
  14. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, December.
  15. Saint-Paul, Gilles, 1994. "Unemployment, wage rigidity, and the returns to education," European Economic Review, Elsevier, vol. 38(3-4), pages 535-543, April.
  16. Michael Lovell, 1975. "The collective allocation of commodities in a democratic society," Public Choice, Springer, vol. 24(1), pages 71-92, December.
  17. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  18. Casey B. Mulligan, 2000. "Induced Retirement, Social Security, and the Pyramid Mirage," NBER Working Papers 7679, National Bureau of Economic Research, Inc.
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