Aging changes the political power in a democracy in favor of the elder generations. Consequently, the retirees can extend the pay-as-you-go financed pensions. Under free labor mobility like within the EU, the success of gerontocracy, nevertheless, is restricted by migration of the young generations. This connection between political voting on intergenerational redistribution and voting with the feet is analyzed in a two-country model with overlapping generations. We distinguish between the case in which the young generations migration decision takes its effect on future pensions into account (strategic migration) and the case in which it only reflects differentials in labor income (myopic migration). The paper also pays attention to the implications of common harmonization principles and to the consequences of price discrimination between natives and immigrants.
Interregional competition on public pensions migration labor mobility gerontocracy