Economics of Demeny Voting
Reiko Aoki (CIS,IER, Hitotsubashi University)
“Political Economy of Low Fertility of Aging” Workshop
Center for Intergenerational Studies (CIS) & National Institute of Research Advancement (NIRA)
2 March 2011
CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Background
• 2 decades of low fertility crisis
• Policies to increase fertility have not been
effective
• Political attention on other topics
– Pension reform
– Healthcare
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Intergenerational allocation of
resources
• Traditionally a “family” or “regional (village)”
policy
• In 20th century, it is done by national
governments, as public policy
– Tax, social security tax
– Pension, health care
• Object of political debate and decision
2 March 2011
3
CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Equivalent Income
Before and After Redistribtuion
450.0
400.0
350.0
300.0
Income (10,000yen)
250.0
200.0
150.0
Equivalence Income Before Redistribution
Equivalence Income After Redistribution
100.0
50.0
0.0
Age group
Source: 2008 Income Redistribution Survey, Ministry of Health, Labor and Welfare
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Political Representation
• Not all generations are represented in the
political process
• Currently people under 20 (18) have no
representation
• This is the case even as intergenerational
redistribution becomes greater proportion of
national budget
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Political Representation of
Generations
70.00
60.00
50.00
40.00
Percentage of population under 18
30.00
Percentage of voters above 55
(Status Quo)
20.00
Percentage of population above 55
(Demeny Voting)
Percentage of voters under 18
10.00
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
0.00
Source: “Population Projections for Japan,“ National Institute of
Population and Social Security Research
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Political System and the
Economic Environment (1)
• Political system has evolved with the
economic and social environment
• One person one vote is a relatively new
idea
– Franchise expansion 19th century
– Women’s suffrage 20th century
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Political System and the
Economic Environment (2)
• Franchise expansion
• Franchise extended in 1832, 1867, 1884
(Europe)
• “Elite” gave rights to “poor” to prevent
revolution (Acemoglu & Robinson 2000)
• Emergence and concentration of working
class in cities
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Political System and the
Economic Environment (3)
• Women’s suffrage
• 1893 (New Zealand), 1920 (US), 1940
(Japan)
• Men vote to empower women for children’s
education (Doepke & Tertilt, 2009)
• Importance of human capital investment with
development of labor markets
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Recent Changes in Economic
Environment
• Change in age structure
• Significant part of Intergenerational
distribution of resources is public
• Need to account all generations in the
political process
• Danger of resource depletion requires
consideration of future welfare
2 March 2011
10
CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Demeny Voting
• Have a parent or parents vote on children’s
behalf
• Example
– Mother, father, and 1 child
– Each parent has 1 (self) + 0.5 (1/2 of 1
child)=1.5
• In practice, need to clarify cases of adopted
children
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Demeny Voting
Current
Demeny
Voting
Parents
24%
37%
Pension Bloc
( >55 years)
43%
35%
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Is Demeny Voting
Beneficial to Current Voters ?
• Can it be achieved through democratic
process ?
• Why would current voters ( 20years and
older) give children a vote ?
• All generations benefit from greater
investment in children
• Demeny voting prevents free riding among
current generation = able to commit to future
2 March 2011
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Aoki "Demographic Change, Intergenerationl Altruism & Fiscal Policy Poltical Economy Approach"
Economics Model Framework (1)
• Intergenerational Income Distribution using
“OLG”
– 2 generations Working and Retired
• Altruism
– Parent cares about child (forward)
– Child cares about parent (backward)
• Retired with or without children
– Working generation still reproducing
22 February 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Framework (2)
• Politically determined income distribution
– Intergenerational coalition possible
• Demeny voting system
– Child has a vote
– Parent votes on behalf
– Why ?
• Intergenerational income distribution has become a
political issue. All generations should have political
representation.
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Main Conclusion
• Working generation become more altruistic
→ Working generation + Retirees with child
coalition → Lower fiscal burden of Working
generation → Working generation better-off
• Demeny voting cooperation possible with
– Higher levels of intergenerational altruism
– Weaker political power of working generation
• Majority better off with Demeny voting
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Generational Structure
Proportion with Child
 t 1  0.5
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Households (1)
• There are two generations involved in each
period t (t=0, 1, 2,…)
– Working generation t
– Retired generation t－1 (which was the Working
generation in period t).
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Households (2)
• Working generation t , in period s, earns
lifetime wage,Wt (s) , has lifetime
consumption,
C
Tt (s )
t (s )
and
pays
tax
in
period
.
In
period
Ct (t )  Wt  Tt (t ), Tt (t )  t (t )Wt
t,
• Retired
generation
t-1, can recover tax paid
Ct 1 (t )  (W
t 1  Tt 1 (t  1))  t , t  Tt 1 (t  1)  Tt 1 (t )
in t-1 by issuing bonds in period t,
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Household Utility
Retired generation t－1 with children
2




U tchild

log
1


(
t
)


log
1


(
t
)



log 1   t 1 (t )
1
t 1
t
t
Retired generation t-1 without children
U tnc1  log 1   t 1 (t )
Working generation t
U t   log 1   t 1 (t )  log 1   t (t )   t log 1   t 1 (t )

2 March 2011
= Backward altruism

= Forward altruism
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Government Budget Constraint
• (Planned) tax on generation t+1 in period t
Tt 1 (t )  t 1 (t )Wt 1
• Public debt when population size is
Nt
Dt  Nt 1 (Tt 1 (t )  Tt 1 (t  1))  NtTt (t )  Nt 1Tt 1 (t )
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Political Process
1. “Retirees with children Independent Majority
Regime”
 t 1st 1 (t ) Nt 1  (1   t 1 )st 1 (t ) Nt 1  st (t ) Nt
Wt (case 1)  U tchild
1
2. “Working generation Independent Majority Regime”
st (t ) Nt  st 1 (t ) Nt 1
Wt (case 2)  U t
• Generation k’s political activism in period t (e.g. voter
turnout rate).
st (t ) [0,1]
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Possible Cooperation (Coalition)
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Cooperation (Coalition) Regimes
3. “Retirees Cooperation Regime”
st 1 (t ) Nt 1  st (t ) Nt ,
 t 1st 1 (t ) Nt 1  (1   t 1 ) st 1 (t ) Nt 1  st (t ) Nt
nc
Wt (case 3)  st 1 (t ) t 1 Nt 1U tchild

s
(
t
)(
1


)
N
U
1
t 1
t 1
t 1 t 1
4. “Working generation + Retirees with
children Cooperation Regime”
 t 1st 1 (t ) N t 1  st (t ) N t  (1   t 1 ) st 1 (t ) N t 1
Wt (case 4)  st 1 (t ) t 1 N t 1U tchild
1  st (t ) N tU t
  t 1U tchild
1   t ntU t
• Relative political influence of the working generation
compared to working generation t-1 t  st (t ) / st 1 (t )
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Upperbound for “Working generation + Retirees with children”
Backward altruism
Forward
altruism
 t  st (t ) / st 1 (t )
2 March 2011
= political influence of the working generation
25
CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
σ increases →Tax rate declines and Working generation utility increases
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Change of Regime
• Care more about parents (more backward
altruism)
• Change from “Retirees Cooperating” to
“Working generation + Retirees with
children”
• Tax burden lower and become better off
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Demeny Voting
• Children (all those currently below the
voting age) given votes but parents vote on
their behalf (Demeny 1986, Aoki and
Vaithianathan 2009）
• ξ : Extent of extension of voting rights to
children (minimum voting age)
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Effect of Demeny Voting
• Current regime in Japan is “Retirees
Cooperation Regime”
• Demeny Voting implies “Working Generation
+ Retired Generation with children regime”
is possible,
 t 1st 1 (t ) Nt 1  (1   t 1 ) st 1 (t ) Nt 1  st (t ) Nt (1  nt 1 )
Wt (case5)   t 1U
2 March 2011
child
t 1
 t nt (1  nt 1 )U t
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Backward altruism
Forward
altruism
Without Demeny voting, upperbound is 0.75 (Table 1)
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Working generation
better-off with
Demeny voting
2 March 2011
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CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
Main Conclusion
• Working generation become more altruistic
→ Working generation + Retirees with child
coalition → Lower fiscal burden of Working
generation → Working generation better-off
• Demeny voting cooperation possible with
– Higher levels of intergenerational altruism
– Weaker political power of working generation
• Majority better off with Demeny voting
2 March 2011
32
CIS & NIRA Workshop "Political Economy of Low Fertitlity and Aging"
Aoki "Economics of Demeny Voting"
References
• Acemoglu & Robinson 2000.”Why Did the West Extend the Franchise?
Democracy, Inequality, and Growth in Historical Perspective”, Quarterly
Journal of Economics 115 :1167–1199
• Aoki, R. and R.Vaithianathan, 2009. “Is Demeny Voting the Answer to Low
Fertility in Japan?” CIS DP No. 435.
• Demeny,P., 1986. “Pronatalist Policies in Low-Fertility Countries: Patterns,
Performance and Prospects,” Population and Development Review,
12(Supplement):335-358.
• Doepke&Tertilt, 2009. “Women’s Liberation: What’s in it for Men ?” Quarterly
Journal of Economics 124:1541-1591
• Oguro,K., M.Shimasawa, R.Aoki and T.Oshio, 2010 “Demographic Change,
Intergenerational Altirusm Policy – A Political Economy Approach,” CIS DP
No.493.
•
http://cis.ier.hit-u.ac.jp/English/
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