Abstract

ABSTRACT This article analyzes the impact of population aging on the composition of taxes in an overlapping generations model. Taxes are levied on both income and expenditure, with the median voter being pivotal in the political-economy theoretical framework in question. As in Razin, Sadka, and Swagel (2002. “The Aging Population and the Size of the Welfare State.” Journal of Political Economy 110 (4): 900–918. doi:10.1086/340780), an increased fraction of retirees in the population leads to lower income taxes. Conversely, the results for expenditure taxes are ambiguous. The main proposition is that the composition of taxes–defined as the extent to which taxes are levied on income relative to expenditure–falls unambiguously with the share of retirees increasing as the tax burden is rebalanced toward the retired population.

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