Demographic Change, Intergenerational Altruism, and Fiscal Policy : A Political Economy Approach

Abstract

Our study employs an OLG model under which political strengths of different generations (the working and retirees with and without children) determine the distribution of the fiscal burden between the generations, including the future generation. We investigate the relationship between the extent of intergenerational altruism, the political regime, and the intergenerational distribution of the fiscal burden. We show that if the working generation were to care more about the utility of the retirees (their parents), cooperation between the working and retirees with children would be possible, changing the political outcome. As a result, the tax burden of the working generation would decrease and its members would be better off. Lowering the voting age and having parents vote on behalf of their children would also result in the same shift, but for higher levels of intergenerational altruism and the working generation’s politicalPublic debt, public deficit, OLG models, intergenerational altruism, Demeny voting method