The Political Economy of Population Aging

Abstract

This paper reviews the latest developments in the political economy literature that are concerned with the consequences of population aging, with a primary focus on the threat posed by aging to the continued existence of public pension programs in developed countries. After briefly recalling why pay-as-you-go (PAYG) public pensions are supported by a political majority in the first place, we turn to analyzing how a drop in fertility or mortality rates will change the contribution rates and pension sizes at the political equilibrium, by first assuming a constant retirement age. Other theoretical works are discussed that are mainly concerned with endogenizing the retirement age choices and exploring the opportunity to transition to a fully funded (FF) system. Empirical assessments of the relationship between a population age structure and the size of its pension programs are also presented. Additionally, we explore the impact of population aging on the political support for other public programs, such as education, heath care (including long-term care), capital taxation, or environment protection. We also give an account of some empirical analyses of the joint determination of education and pension programs.

Reference

Loic Batte, and Georges Casamatta, “The Political Economy of Population Aging”, in Handbook of the Economics of Population Aging, John Piggott, and Alan Woodland (eds.), chapter 7, 2016.