dependency ratios, geriatrics, overlapping-generations model, educational finance, demographic transition, human capital accumulation, economic growth, generational conflict
Worldwide, dependency ratios are forecast to increase dramatically in the next 50 years. A great deal of attention has been devoted to understanding the changes in fiscal policies that "must" take place to accommodate these changes. In contrast, less effort has been concentrated on studying the fiscal shifts that will endogenously result from demographic pressures. An example of particular interest is the degree to which a more elderly population will support public spending for education. We use an overlapping-generations model to investigate the effect of this demographic transition on the endogenous determination of public spending for education. A demographic transition alters the identity of the median voter, leading to a preference for less education spending. If the public sector is inefficiently small, demographic transition exacerbates the under provision of human capital. Alternatively, such a shift may trim an inefficiently large government, reduce tax rates, and raise capital per worker enough to raise education spending. Thus, there is no automatic link between demographic transition and reduced support for those programs whose benefits are concentrated among the young.
Holtz-Eakin, Douglas; Lovely, Mary E.; and Tosun, Mehmet Serkan, "Generational Conflict, Human Capital Accumulation, and Economic Growth" (2000). Center for Policy Research. 127.
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