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

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  • Sita Nataraj Slavov

    () (Department of Economics, 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 Nataraj, 2004), I demonstrate that policies favoring the old are easier to sustain politically than any 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, there is little flexibility to reward older generations in a similar manner. This asymmetry helps to generate broad political support for large public transfers to older individuals.

Suggested Citation

  • Sita Nataraj Slavov, 2001. "Age Bias in Fiscal Policy: Why Does the Political Process Favor the Elderly?," Occidental Economics Working Papers 1, Occidental College, Department of Economics, revised Jan 2006.
  • Handle: RePEc:occ:wpaper:1
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    File URL: http://faculty.oxy.edu/sslavov/Slavov_age_bias.PDF
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    References listed on IDEAS

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    Cited by:

    1. Panu Poutvaara, 2006. "On the political economy of social security and public education," Journal of Population Economics, Springer;European Society for Population Economics, pages 345-365.
    2. Roger Lagunoff (Georgetown University), 2005. "Markov Equilibrium in Models of Dynamic Endogenous Political Institutions," Working Papers gueconwpa~05-05-07, Georgetown University, Department of Economics.
    3. Mehmet Serkan Tosun & Claudia Williamson & Pavel Yakovlev, 2007. "Population Aging, Elderly Migration and Education Spending: Intergenerational Conflict Revisited," Working Papers 07-003, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics.
    4. 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, pages 1-46.
    5. B. D. Bernheim & S. N. Slavov, 2009. "A Solution Concept for Majority Rule in Dynamic Settings," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 33-62.

    More about this item

    Keywords

    majority rule; overlapping generations; age bias; Condorcet winner; intergenerational transfers; Social Security;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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