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

By Phillip L Swagel, Efraim Sadka, Assaf Razin

April 1, 2002

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Phillip L Swagel, Efraim Sadka, and Assaf Razin. The Aging of the Population and the Size of the Welfare State, (USA: International Monetary Fund, 2002) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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 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.

Subject: Aging, Labor, Labor taxes, National accounts, Personal income, Population and demographics, Taxes

Keywords: Aging, Dependency ratio, Equilibrium tax rate, Equilibrium tax-transfer policy, Europe, Global, Income share, Income tax, Labor income, Labor tax, Labor tax rate, Labor taxes, Personal income, Political economy, Tax burden, Tax rate, Transfer element, Western Europe, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/068
Stock No:

WPIEA0682002
ISBN:

9781451849004
ISSN:

1018-5941

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