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

Phillip Swagel, Efraim Sadka and Assaf Razin

No 2002/068, IMF Working Papers from International Monetary Fund

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 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: 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 (search for similar items in EconPapers)
Pages: 24
Date: 2002-04-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (155)

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Related works:
Journal Article: The Aging Population and the Size of the Welfare State (2002)
Working Paper: The Aging Population and the Size of the Welfare State (2001)
Working Paper: The Aging Population and the Size of the Welfare State (2001)
Working Paper: The Aging Population and the Size of the Welfare State (2000)
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