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Modelling the Effect of Population Ageing on Government Social Expenditures

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Abstract

This paper reviews and extends a new framework, developed by Razin, Sadka, and Swagel, for capturing the effect of population ageing on public support for government social expenditures. Razin et al construct up an overlapping generations, median voter model, and investigate the empirical applicability of the model using panel data from 13 OECD countries. Their results suggest that population ageing will put downward pressure on per capita expenditures. These results rest, however, on an assumption that there is only one dependant age group: the old. This paper investigates the consequences of allowing for two such age groups: the young and the old. A replication of Razin et al’s empirical analysis, using two dependent age groups rather than one, suggests that population ageing will instead put upward pressure on per capita expenditures. Although these results are tentative, they illustrate the usefulness of including both youth dependency and old-age dependency in Razin et al’s framework.

Suggested Citation

  • John Bryant, 2003. "Modelling the Effect of Population Ageing on Government Social Expenditures," Treasury Working Paper Series 03/15, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:03/15
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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2003/03-15/twp03-15.pdf
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    References listed on IDEAS

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    1. 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.
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    Cited by:

    1. Sanz, Ismael & Velazquez, Francisco J., 2007. "The role of ageing in the growth of government and social welfare spending in the OECD," European Journal of Political Economy, Elsevier, vol. 23(4), pages 917-931, December.
    2. John Bryant, 2003. "Demographic Change and New Zealand’s Economic Growth," Treasury Working Paper Series 03/04, New Zealand Treasury.
    3. Disney, Richard & Galasso, Vincenzo & Profeta, Paola, 2007. "A further comment on ageing and the welfare state," European Journal of Political Economy, Elsevier, vol. 23(2), pages 576-577, June.
    4. Disney, Richard, 2007. "Population ageing and the size of the welfare state: Is there a puzzle to explain?," European Journal of Political Economy, Elsevier, vol. 23(2), pages 542-553, June.
    5. Simonovits, Andras, 2007. "Can population ageing imply a smaller welfare state?," European Journal of Political Economy, Elsevier, vol. 23(2), pages 534-541, June.
    6. repec:eee:hapoch:v1_381 is not listed on IDEAS
    7. Shimasawa, Manabu & Oguro, Kazumasa & Toyoda, Nao, 2014. "Does Japan have a Gray Democracy? An empirical analysis of prefectural data," CIS Discussion paper series 615, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.

    More about this item

    Keywords

    Social expenditures; Median voter models; Population Ageing;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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