How Does Ageing Affect the Welfare State?
Econpubblica Working Paper No. 114
19 Pages Posted: 6 Feb 2009
Date Written: November 5, 2006
In a political economy environment, aging has opposite economic and political effects on the size of the welfare state. On one side, it tends to decrease the profitability of a welfare state that features a PAYG pension system, thus inducing individuals to prefer a smaller system; on the other side the pivotal (median) voter becomes older (or poorer) and hence more willing to support a larger system. The overall effect is thus ambiguous.
We show that specific features of the welfare system, such as its composition and the redistributive design of social security may change the magnitude of the economic effect and thus of the overall impact of aging on the size of the welfare state.
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