`Does an ageing society increase inequality?' This question is posed by policy-makers in many industrialised countries today. According to Research Fellow Robert von Weizsäcker in Discussion Paper No. 1322, this question is too ill-defined to have a simple answer. General insight into the complexities involved is neither large nor undisputed. This is due to the intricate demo-economic causes of changes in fertility and mortality, the consequences for the financing of demographically-sensitive public expenditures, and its combined impact on the distribution of income.

The paper reviews recent research on the impact of an ageing population on the distribution of income. After briefly discussing the demographic conditions responsible for population ageing, a short account is given of demographic trends in the industrialised world. In order to understand, at least partially, how observed relationships may have been generated, a highly stylised framework is applied to four separately treated though related issues: compositional effects, fiscal and institutional repercussions, optimising responses and cohort-size effects, as well as current versus lifetime incidence. These are sources of distributional policy conflicts at both the cross-section level and the lifetime level of income inequality, and are shown to drive the relation between population ageing and income distribution in distinct and partially opposite ways. It is shown that fundamental policy decisions responding to the solvency problems caused by an ageing population may induce contrary demographic inequality effects.