Population ageing and the size of the welfare state: Is there a puzzle to explain?

The view that demographic ageing will lead to a growing welfare state has been questioned by Razin et al. [Razin, A., Sadka, E., Swagel, P., 2002. The aging population and the size of the welfare state. Journal of Political Economy 110, 900−918]. Their empirical analysis suggests that growing dependency is associated with a smaller welfare state. They construct a model of welfare provision with heterogeneous workers consistent with this 'puzzle'. I show here that their empirical 'puzzle' simply does not exist - both cross-tabulations and econometrics show that demographic ageing is associated with a larger welfare state. Moreover, worker heterogeneity does not affect the welfare state in the suggested manner. There is evidence that social security design matters when considering the effect of old age dependency on the size of the welfare state.