DP2788 On the Political Complementarity Between Health Care and Social Security

Author(s): Carlos Bethencourt Marrero, Vincenzo Galasso
Publication Date: May 2001
Keyword(s): Endogenous Longevity, Subgame Perfect Structure Induced Equilibrium
JEL(s): D72, H53, H55
Programme Areas: Labour Economics, Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2788

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.