Grey power and Economic Performance

Democracies have experienced profound population ageing in the last decades. Yet we still know little about the political consequences of ageing for economic performance. This article develops a novel theoretical framework linking ageing to lower economic growth through two mechanisms: first, grey power pushes elected governments to expand consumption policies thereby ‘crowding out’ investments; second, ageing populations weaken the electoral penalty for lower growth performance leading to ‘economic unaccountability’. Using microdata from four cross-national survey of preferences and vote choices, I show that elderly individuals care more about pensions, but less about education, and they are less likely to penalize governments for low growth. Using macrodata on 21 advanced economies since the 1960s, OLS and instrumental variable regressions provide evidence that ageing leads to more spending on consumption policies but less on social investment policies, and lower growth. Ageing countries may paradoxically become economically inefficient because they are politically efficient.