The political effects of ageing on inflation

Vlandas, T. (2016) The political effects of ageing on inflation. Intereconomics: Review of European Economic Policy, 51 (5). pp. 266-271. ISSN 1613-964X doi: 10.1007/s10272-016-0616-9

Abstract/Summary

Why do different countries exhibit different inflation rates? Most political economy accounts emphasise the role of ideas and institutions: as innovations in economics show that low inflation is achievable at no economic cost, governments delegate monetary policy to independent central banks. Countries with independent central banks and unions that anticipate the consequences of their actions by coordinating wage bargaining in turn achieve lower inflation. This conventional wisdom downplays the importance of interests. By contrast, I argue that the power of a growing electoral group – the elderly – has an importance influence on inflation. Because the elderly are politically powerful and inflation averse, countries with more elderly force political parties to adopt more economically orthodox policies when in power. As a result, countries with a larger share of elderly have lower inflation rates. Ageing may therefore lock in a low inflation regime, even when this is not economically desirable.