DP3950 Aging Population and Education Finance
Conventional wisdom suggests that aging of population will increase political pressure to tilt the composition of social spending in favour of the elderly, while potentially sacrificing other publicly provided goods such as education. This view seems to be supported by recent empirical findings that per child public education spending tends to be lower in US jurisdictions with higher fraction of elderly residents. Do these cross-sectional findings also carry the dynamic implication that longevity will lead over time to waning political support for funding of public education? This Paper challenges such implication. We present a model that is consistent with the aforementioned cross-sectional regressions yet predicts an overall positive impact of increasing longevity on public education funding and economic growth.