The public reallocation of resources across age: a comparison of Austria and Sweden

Abstract

There is a strong interdependency between public transfers and the shape of the economic lifecycle because these transfers facilitate and enable the decoupling of production and consumption over long time periods, most notably in childhood and retirement. The design of public transfers obviously influences the production and consumption and consequently also the degree of economic dependency of children and the elderly. We propose economic dependency ratios which are based on age-specific consumption and labour income or age-specific public contributions/benefits, respectively, illustrating them in a comparison of Austria and Sweden. Although these two countries are very similar economies in terms of production, income and the size of the public sector, there are remarkable differences in the design of public transfers, in their distribution over age-groups and consequently in the shape of the average economic lifecycle. Using the economic dependency ratios we show that the financial sustainability of the public transfer system depends beside the demographic developments strongly on its design: the Swedish system collects the contributions from a wider range of age groups, transfers a smaller share to the elderly and provides more support to younger generations, supporting them to invest in children of their own. These characteristics have a positive effect on the sustainability of the Swedish system: although in Sweden there is a larger share of the population in the age group 60+, the total economic dependency of elderly persons is lower.