NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Aging Population and the Size of the Welfare State

Assaf Razin, Efraim Sadka, Phillip Swagel

NBER Working Paper No. 8405
Issued in July 2001
NBER Program(s):   PE

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.

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Document Object Identifier (DOI): 10.3386/w8405

Published: Razin, Assaf, Efraim Sadka and Phillip Swagel. "The Aging Population And The Size Of The Welfare State," Journal of Political Economy, 2002, v110(4,Aug), 900-918.

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