Working Paper: CEPR ID: DP2788
Authors: Carlos Bethencourt Marrero; Vincenzo Galasso
Abstract: The dramatic rise in the US social security and public health expenditure is only partially explained by the demographic trend. We suggest that the political complementarity between these two programmes induced a multiplicative response to the ageing process. Public health care increases the political constituency in favour of social security, and vice versa. Specifically, public health decreases the longevity differential between low and high-income individuals, therefore rising the retirement period and the total pension benefits of the former relatively to the latter. This effect, whose empirical relevance is confirmed by independent studies, increases the political support for social security among the low-income young. We show that in a political equilibrium of a two-dimensional majoritarian election, a voting majority of low-income young and all retirees supports a large welfare state. Its composition between public health and social security is determined by intermediate (median) income types, who favour a combination of the two programs, since public health increases their longevity enough to make social security more attractive.
Keywords: endogenous longevity; subgame perfect; structure induced equilibrium
JEL Codes: D72; H53; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| public health care (I18) | longevity differentials (J19) |
| longevity differentials (J19) | political support for social security (H55) |
| public health care (I18) | political support for social security (H55) |
| public health care (I18) | total pension benefits for low-income individuals (H55) |
| total pension benefits for low-income individuals (H55) | political support for social security (H55) |
| public health care (I18) | longevity for low-income individuals (I14) |
| longevity for low-income individuals (I14) | political support for social security (H55) |