hero working papers

On the Political Complementarity between Health Care and Social Security

Number: 184
Year: 2001
Author(s): Carlos Bethencourt (Universidad Carlos lll de Madrid and Universidad La Laguna) and Vincenzo Galasso (IGIER, Universidad Carlos lll de Madrid and CEPR )

The dramatic rise in the US social security and public health expenditure is only partially explained by the demographic trend, and may be due to the political complementarity between these two programs. We suggest that public health care increases the political constituency in favor of social security, and viceversa. Specifically, public health decreases the longevity differential between low and high-income individuals, therefore rising the retirement period, and the total pension benefits of the former relatively to the latter. This increases the political support for social security among the low-income young. We show that in a political equilibrium of a two-dimensional majoritarian election, a voting majority of low-income young and all retirees supports a large welfare state. Its composition between public health and social security is determined by intermediate (median) income types, who favor a combination of the two programs, since public health increases their longevity enough to make social security more attractive.