The intergenerational politics of economic inequality and efficiency

Author – Tim Vlandas.

Abstract :

Democracies have experienced profound population ageing in the last decades. Yet we still know little about the political consequences of ageing for equality and economic performance. This article argues that ageing increases the political power of the old at the expense of younger individuals. In turn, this leads to greater intergenerational inequalities and lower economic growth through two mechanisms: first, grey power pushes elected governments to expand consumption policies for the old thereby ‘crowding out’ policies benefiting younger individuals in the present and future; second, ageing populations weaken the electoral penalty for intergenerational inequality and lower growth performance leading to ‘economic unaccountability’. Using microdata from four cross-national survey of preferences and vote choices, I show that elderly individuals care more about pensions, but less about education, and they are less likely to penalize governments for low growth. Using macrodata on 21 advanced economies since the 1960s, OLS and instrumental variable regressions provide evidence that ageing leads to more spending on consumption policies but less on social investment policies. I then explore whether and under what conditions ageing is linked to greater economic inequality and lower growth. Ageing countries may paradoxically become economically inefficient and unequal because they are politically efficient.