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The Aging of the Population and the Size of the Welfare State

  • Phillip Swagel
  • Efraim Sadka
  • Assaf Razin

Data for the United States and countries in Western Europe indicate a negative correlation between the dependency ratio and both labor tax rates and the generosity of social transfers, after controlling for other factors that influence the size of the welfare state. This is despite the increased political clout of the dependent population implied by the aging of the population. This paper develops a model of intra-and inter-generational transfers and human capital formation which addresses this seeming puzzle. We show that with democratic voting, a higher dependency ratio can lead to lower taxes or less generous social transfers.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/68.

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Length: 24
Date of creation: 01 Apr 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/68
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  1. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
  2. Assaf Razin & Efraim Sadka, 1998. "Migration and Pension," NBER Working Papers 6778, National Bureau of Economic Research, Inc.
  3. Razin, A. & Sadka, E., 1992. "Resisting Migration: Wage Rigidity and Income Redistribution," Papers 28-94, Tel Aviv.
  4. Casey B. Mulligan, 2000. "Induced Retirement, Social Security, and the Pyramid Mirage," NBER Working Papers 7679, National Bureau of Economic Research, Inc.
  5. 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.
  6. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
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  8. Assaf Razin & Effraim Sadka & Phillip Swagel, 1998. "Tax Burden and Migration: A Political Economy Theory and Evidence," NBER Working Papers 6734, National Bureau of Economic Research, Inc.
  9. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-56, August.
  10. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
  11. Torsten Persson & Guido Tabellini, 1999. "Political Economics and Public Finance," NBER Working Papers 7097, National Bureau of Economic Research, Inc.
  12. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  13. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
  14. 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.
  15. 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.
  16. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
  17. Saint-Paul, G., 1993. "Unemployment, Wage Rigidity, and the Returns to Education," DELTA Working Papers 93-11, DELTA (Ecole normale supérieure).
  18. Michael Lovell, 1975. "The collective allocation of commodities in a democratic society," Public Choice, Springer, vol. 24(1), pages 71-92, December.
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