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The Aging of the Population and the Size of the Welfare State
Author:
Mr. Phillip L Swagel
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Efraim Sadka null

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Assaf Razin null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2002: Issue 068
Language:
English
Publication Date:
01 Apr 2002
DOI:
https://doi.org/10.5089/9781451849004.001
ISBN:
9781451849004
ISSN:
1018-5941
Pages:
24
Keywords:
WP; tax rate; income tax; tax burden; aging; dependency ratio; political economy; labor tax; labor income; equilibrium tax rate; labor tax rate; income share; transfer element; equilibrium tax-transfer policy; Personal income; Labor taxes; Europe; Western Europe; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund