Skip to main content

Aging and political decision making on public pensions

Abstract

In this paper decision making on public pensions in a representative democracy is modeled within the framework of the well-known two-overlappinggenerations (OLG) general-equilibrium model with rational expectations. The model is used to analyze the effects of aging on the economy in general and on the evolution of public pension schemes in particular, where aging is interpreted as a combination of a decrease in the rate of population growth and an increase in the political influence of pensioners. Analytical results are derived for the long run as well as for the short run by the method of comparative statics and comparative dynamics respectively. It appears that an increase in transfers to the old is not guaranteed if due to aging their political power increases.

This is a preview of subscription content, access via your institution.

References

  • Bernheim BD (1989) Intergenerational altruism, dynastic equilibria and social welfare. Rev Econ Studies 56:119–128

    Article  Google Scholar 

  • Blanchard OJ, Kahn CM (1980) The solution of linear difference models under rational expectations. Econometrica 48:1305–1311

    Article  Google Scholar 

  • Blanchet D, Kessler A (1991) Optimal pension funding with demographic instability and endogenous returns on investment. J Popul Econ 4:137–154

    Article  Google Scholar 

  • Boadway RW, Wildasin D (1989) A median voter model of social security. Internat Econ Rev 30:307–328

    Article  Google Scholar 

  • Breyer F (1994) The political economy of intergenerational redistribution. Eur J Polit Econ 10:61–84

    Article  Google Scholar 

  • Browning EK (1975) Why the social insurance budget is too large in a democracy. Econ Inquiry 13:373–388

    Article  Google Scholar 

  • Cigno A (1992) Children and pensions. J Popul Econ 5:175–183

    Google Scholar 

  • Cutler DM, Poterba JM, Sheiner LM, Summers LH (1990) An aging society: Opportunity or challenge? Brookings Papers on Econ Activity 1990(1): 1–56

    Article  Google Scholar 

  • Hansson I, Stuart C (1989) Social security as trade among living generations. Am Econ Rev 79:1182–1195

    Google Scholar 

  • Hettich W, Winer SL (1989) Economic and political foundations of tax structure. Am Econ Rev 78:701–712

    Google Scholar 

  • Judd KL (1982) An alternative to steady-state comparison in perfect foresight models. Econ Lett 10:55–59

    Article  Google Scholar 

  • Kristov L, Lindert P, McClelland R (1992) Pressure groups and redistribution. J Public Econ 48:135–163

    Article  Google Scholar 

  • Meijdam AC, Verbon HAA (1995a) Aging and political decision making on public pensions. Mimeo, Tilburg University

    Google Scholar 

  • Meijdam AC, Verbon HAA (1995b) Aging and public pensions in an overlapping-generations model. CentER Discussion Paper, No. 9538, Tilburg University

  • Meijdam AC, Verhoeven MJM (1994) Comparative dynamics in perfect-foresight models. CentER Discussion Paper, No. 9473, Tilburg University

  • Noord P van den, Herd R (1993) Pension liabilities in the seven major economies. OECD Working Paper, No. 142

  • Olson M (1965) The logic of collective action. Harvard University Press, Cambridge

    Google Scholar 

  • Verbon HAA (1988) The evolution of public pension schemes. Springer, Berlin Heidelberg

    Google Scholar 

  • Verbon HAA (1993) Public pensions. The role of public choice and expectations. J Popul Econ 6:123–135

    Article  Google Scholar 

  • Verbon HAA, Verhoeven MJM (1992) Decision making on pension schemes under rational expectations. J Economics 56:71–97

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Meijdam, L., Verbon, H.A.A. Aging and political decision making on public pensions. J Popul Econ 9, 141–158 (1996). https://doi.org/10.1007/PL00003831

Download citation

  • Received:

  • Accepted:

  • Issue Date:

  • DOI: https://doi.org/10.1007/PL00003831

JEL classification

  • J14
  • H55

Key words

  • Aging
  • overlapping generations
  • pensions