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Intergenerational Cohesion and the Political Economy of Pension Reform

Professor Axel Boersch-SupanProfessor Axel Boersch-Supan,
Director of the Mannheim Research Institute for the Economics of Aging (MEA) has discussed  Intergenerational Cohesion and the Political Economy of Pension Reform at the OIA Seminar Series, 4th November 2010.

Population aging puts strain on social security and moves political power towards the elderly as the median voter’s age rises. This paper examines the consequences of this development for the social, political and economic stability of aging societies. We shed light on these issues by first investigating the development of the generosity of European welfare states towards the elderly. No crowding out between expenditures for the old and young can be observed yet. However, in recent years the pattern of aggregate expenditures seems to change in favor of the old. Second, as the future development of social expenditures depends on the success of future reforms in adapting to population aging, we present evidence on how social policy preferences differ by age. While there are significant differences between old and young about spending for different policy areas, there are mitigating factors like the presence of children and grand-children which seem to strengthen the elderly’s preferences towards spending for the young. Third, actual interactions between the generations in Europe reveal very intact ties between generations. We conclude: While demographic, economic and political forces will increasingly drive social expenditures towards the elderly in course of demographic change, the fear about aging populations becoming gerontocracies in which the old exploit the young is highly inappropriate.

Axel Börsch-Supan is Professor of Macroeconomics and Public Policy and Founding and Executive Director of the Mannheim Research Institute for the Economics of Aging (MEA) at Mannheim University, Germany. He is also a Research Associate at the National Bureau of Economic Research (NBER, Cambridge, Massachusetts) and Adjunct Researcher at the RAND Corporation (Santa Monica, California).
Börsch-Supan holds a Ph.D. degree from M.I.T. and had faculty positions at Harvard, Dortmund and Dresden. He is member of the German National Academy of Sciences, the Berlin-Brandenburg Academy of Sciences and the MacArthur Foundation Aging Societies Network.
He was chairman of the Council of Advisors to the German Economics Ministry, has co-chaired the German Pension Reform Commission, and was member of the German President’s Commission on Demographic Change. He has served as a consultant to many governments, the OECD, the World Bank, among others.
His current research focuses on household retirement and savings behavior, age and productivity, and the Survey of Health, Ageing and Retirement in Europe (SHARE) which he directs.

> Further information about Michealmas OIA 2010 Seminar Series