Age Bias in Fiscal Policy: Why Does the Political Process Favor the Elderly?

Topics in Theoretical Economics, 6(1), 2006, Article 11

Posted: 2 Feb 2013

See all articles by Sita N. Slavov

Sita N. Slavov

American Enterprise Institute; Occidental College - Department of Economics

Date Written: 2006

Abstract

Across countries, government expenditures tend to favor the elderly. This paper provides a political economy explanation for this phenomenon. I consider the classic problem of dividing a fixed payoff in an overlapping generations setting. Any share of the payoff can be given to any generation. Using a new solution concept for majority rule in dynamic settings (Bernheim and Slavov, 2006), I demonstrate that policies favoring the old are easier to sustain politically than other policies. This result appears across a broad class of majoritarian institutions and thus reflects general forces at work in the political process. Age bias arises because it is easy to induce the young to support policies favoring the elderly by promising them large rewards later in their lives. On the other hand, older generations cannot be rewarded in a similar manner. This asymmetry helps to generate broad political support for large transfers to older individuals.

Keywords: elderly, retirement, government expenditures, majority rule, dynamic

Suggested Citation

Slavov, Sita N., Age Bias in Fiscal Policy: Why Does the Political Process Favor the Elderly? (2006). Topics in Theoretical Economics, 6(1), 2006, Article 11, Available at SSRN: https://ssrn.com/abstract=2210485

Sita N. Slavov (Contact Author)

American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

HOME PAGE: http://www.aei.org/scholar/sita-nataraj-slavov/

Occidental College - Department of Economics ( email )

Los Angeles, CA 90041
United States

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