Question

In: Economics

When the government taxes younger people to pay benefits to older people, how does this affect...

When the government taxes younger people to pay benefits to older people, how does this affect the amount of assistance that younger people might voluntarily choose to offer older people? How does this affect the size of the bequests that older people are likely to leave to their children or grandchildren when they die? How does it affect the decisions of the younger workers about how much leisure they consume (how they spend their disposable income)? How does the promise of guaranteed Social Security and Medicare benefits affect an individual's decision to save during the years before retirement age?

Solutions

Expert Solution

In any society, saving plays an important role. Because it contributes to increasing economic growth and living standard in the country. When younger people save out of their income, this gives more funds to investment and revenue to the government. This provides benefits to older people in the country.

But when the government increases the taxes on younger people to benefit older people this sometimes discourages younger people to work hard. But instead of this if younger people start doing this activity voluntarily which might create more sympathy in the minds of older people and they will leave more wealth to their grandchildren.


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