Discussion Paper Details

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Title: On the Political Complementarity Between Health Care and Social Security

Author(s): Carlos Bethencourt Marrero and Vincenzo Galasso

Publication Date: May 2001

Keyword(s): Endogenous Longevity and Subgame Perfect Structure Induced Equilibrium

Programme Area(s): Labour Economics and Public Economics

Abstract: 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.

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Bibliographic Reference

Bethencourt Marrero, C and Galasso, V. 2001. 'On the Political Complementarity Between Health Care and Social Security'. London, Centre for Economic Policy Research.