Population Aging and Preferences for Public Debt and Investments

• In Event: Economic Inequality, Redistribution, and Public Opinion

Abstract

Does population aging fuel or hinder support for long-term public investments? As the electorate gets older, its shorter time horizon might disincentivize governments to promote long-run policies. Since most of these massive investments are funded via borrowing, the supposed inclination of older citizens for debt might, on the contrary, facilitate political coalitions over public investments

I provide original behavioral measures of population aging’s effect on collective preferences for a variety of long-term policies. For this, I draw on several novel data sets on state and local bond elections in the United States. They include election results for more than 30,000 precincts in 126 state and local bond elections in California between 2002 and 2020; votes on 21,975 local bond and tax elections in Ohio between 2000 and 2020; and county votes on 975 state bond elections in all American states between 1967 and 2020.

I first provide evidence that aging induces lower support for investments in many domains. Effects are substantively large, with a 1 percentage point (p.p.) increase in the share of seniors leading to a 0.15 p.p. decrease in support for investments. Findings are robust across states and over the last six decades, showing no sign of cohort-specific effect. Results are also consistent across government levels, indicating that whether investments are repaid via state income or local property tax does not fundamentally change aging' effect. This suggests that aging influences preferences independently of its impacts on estate and homeownership rates. I also establish that as the maturity of an investment increases, the negative effect of aging on support for investments gets stronger. Aging decreases the time horizon of the median voter, making long-term investments with large upfront costs and delayed streams of small benefits less attractive. This is key to explain why I find, contrary to theoretical expectations, that aging does not make communities prefer policies funded by debt rather than by taxation.

Secondly, I show that aging’s effect on support for investments is a function of investment utilization rates by elders. Age is a strong predictor of preferences between different categories of investments, as it shapes which goods and policies people use. In this vein, population aging shifts collective policy preferences, negatively affecting support for amenities less used by seniors while preserving approval for investments they benefit most directly from.

Given these diverging age-based preferences, contact between age groups generates tension over resource allocation. As the share of children increases in their community, aging electorates display stronger opposition towards all investments. This effect is particularly strong, and not even intergenerational contacts at the block-level or within families seem to revert seniors' hostility toward investments. It suggests that seniors do not fully internalize the benefits of their young relatives in their votes.

My first finding that aging shapes both intertemporal and immediate preferences for investments makes several contributions. First, I provide unique evidence in a real-life setting that aging communities' policy support is a decreasing function of policy length, confirming findings on individual economic behaviors. This result is meaningful for policymaking, as it indicates that population aging could complicate coalition-building on long-term policies such as climate change. I also empirically show that having a shorter time horizon does not increase support for borrowing, contrary to predictions from workhorse political economy models of public debt. This result points to the necessity of refining theoretical predictions on debt accumulation by differentiating between deficits aimed at immediate consumption and long-term borrowing directed toward investments. I further confirm age-based self-interest theories by showing that older electorates dislike investments they do not benefit from, and advance this literature by studying a more extensive family of goods than targeted welfare programs.

My second finding that age-based preferences are more salient in communities with higher age heterogeneity makes additional contributions. First, my result that seniors become more hostile to investments when the share of children increases in their community contrasts with surveys highlighting intergenerational solidarity. The fact that intergenerational contact within families does not alleviate tensions further questions the conditions under which intergenerational political coalitions are possible. My finding also echoes and expands the literature on urban politics in the United States showing that the cohabitation of groups with different policy preferences shapes political outcomes. It also suggests that racial conflicts over resource allocation might have a generational component, as racial groups often have different age distributions.

Author

• Arnaud Maurel, Columbia University