The Aging Population and the Size of the Welfare State

24 Pages Posted: 29 Jul 2001 Last revised: 4 Oct 2001

See all articles by Assaf Razin

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Efraim Sadka

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Phillip Swagel

Northwestern University - Department of Economics; International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2001

Abstract

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 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 an overlapping generations model of intra-and inter-generational transfers (including old-age social security) and human capital formation which 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.

Suggested Citation

Razin, Assaf and Sadka, Efraim and Swagel, Phillip, The Aging Population and the Size of the Welfare State (July 2001). NBER Working Paper No. w8405. Available at SSRN: https://ssrn.com/abstract=278038

Assaf Razin (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

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Efraim Sadka

Tel Aviv University - Eitan Berglas School of Economics ( email )

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Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9712 (Phone)
+972 3 642 8074 (Fax)

National Bureau of Economic Research (NBER)

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United States

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

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Phillip Swagel

Northwestern University - Department of Economics ( email )

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