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

24 Pages Posted: 14 Feb 2006

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)

Date Written: April 2002

Abstract

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 the case 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.

Keywords: aging, dependency ratio, political economy, labor tax

JEL Classification: H11, H24

Suggested Citation

Razin, Assaf and Sadka, Efraim and Swagel, Phillip, The Aging of the Population and the Size of the Welfare State (April 2002). IMF Working Paper, Vol. , pp. 1-24, 2002. Available at SSRN: https://ssrn.com/abstract=879566

Assaf Razin (Contact Author)

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

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Israel
+972 3 640 7303 (Phone)
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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 )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9712 (Phone)
+972 3 642 8074 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Phillip Swagel

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States
(847) 491-8219 (Phone)

International Monetary Fund (IMF) ( email )

700 19th Street NW
IMF Room 10-612F
Washington, DC 20431
United States
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(202) 623-6343 (Fax)

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