Research
Research
The increase in income inequality and the population ageing are two of the major trends in developed countries. This paper investigates the effect of these trends on education and pension spending taking into account simultaneously two political conflicts that arise within (intragenerational conflict) and between (intergenerational conflict) generations. The former conflict is over the taxation between "poor" and "rich". The latter conflict is over the allocation of the resources between elderly (i.e. pensions) and young (i.e. education). An increase in income inequality directly affects the former whereas the population ageing directly affects the latter. We examine how voters of different age and income decide their preferred levels of pensions and education per retiree and student, respectively. For this, we develop an overlapping generations model with public and private education, a PAYG pension system, endogenous fertility, and probabilistic voting on the level of pensions and education. In this model, an increase in income inequality increases public education and pensions spending per enrolled student and retiree, respectively, and decreases the participation in public education and fertility. An increase in the share of retirees in the economy decreases the per student spending on public education and pensions, while decreasing the participation in public education and the fertility rate. The empirical evidence from OECD countries seems to confirm our theoretical predictions regarding public education spending.
(with, Concepció Patxot) (extended working paper version, here)
Public intergenerational transfers may emerge from the failure of private arrangements to provide optimal economic resources for the young and old. We assess the political sustainability of a joint system of public pensions and education by exploiting the particular nature of National Transfer Accounts data and the political economy application proposed by Rangel (2003). Our findings suggest that most of the countries in the sample that have advanced demographic aging and fairly developed level of public intergenerational transfers, would vote in favor of such a system if the decision per se was put to the vote. Interestingly, political support is reinforced when we account for further population aging.
(Published in Applied Economics Letters, 2019.)
(with, Concepció Patxot and Meritxell Solé)
The paper examines the effect of population ageing on public education spending. On the one hand, ageing is expected to have a negative effect on education, as an increasing number of retirees results in intergenerational conflict and, hence, the condemnation of education expenditure. On the other hand, ageing, in combination with pay-as-you-go pension systems, offers incentives for the working-age generation to invest in the public education of the young in order to “reap” the benefits (that is, higher income tax/contributions) of their greater future productivity. Empirical evidence derived from the application of a fixed effects approach to panel data for OECD countries shows that the increasing share of elderly people has a non-linear effect on education spending. This indicates a certain degree of intergenerational conflict. Nevertheless, we find that future population ageing, which reinforces the mechanism linking public education and pensions, reflects positively on education expenditure. Furthermore, by disaggregating total education expenditure by educational levels, we observe that this effect is led by levels of non-compulsory education, probably as a reflection of the direct connection to labor productivity.
(Published in Applied Economics, 2019 )
Essays on Political Economy of Public Intergenerational Transfers (defended on July 2019).
Other Publications
Political Sustainability of Public Intergenerational Transfers: An Application of National Transfer Accounts. Weltransim Policy Brief (2019).
(with Concepció Patxot)
Los equilibrios del estado del bienestar, El Observatorio Social de la Fundacion "la Caixa" (November 2021, in Spanish)
(with Concepció Patxot)