The Political Economy of Public Investment when Population is Aging – A Panel Cointegration
نویسندگان
چکیده
Time preferences vary by age. Notably, according to experimental studies, senior citizens tend to discount future payoff s more heavily than working-age individuals. Based on these fi ndings, we hypothesize that demographic change has contributed to the cut-back in government-fi nanced investment that many advanced economies experienced over the last four decades. We demonstrate for a panel of 13 OECD countries between 1971 and 2007 that the share of elderly voters and public investment rates are cointegrated, indicating a long-run relationship between them. Estimating this cointegration relationship via pooled dynamic OLS (D-OLS) and fully modifi ed OLS (FM-OLS) we fi nd a negative and signifi cant eff ect of population aging on public investment. Moreover, the estimation of an error correction model reveals long-run Granger causality running exclusively from aging to investment. Our results are robust to the inclusion of additional control variables typically considered in literature on the determinants of public investment. JEL Classifi cation: H54, D72, J11, J14, D91
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