Where Should the Elderly Live and and Who Should Pay for their Care? A Study in Demographics and Geographical Economics

There is a rich literature analyzing the problems that will arise as the share of elderly and retired in the population will rise in the near future. However, the locational decisions among the elderly as well as their implications in terms of taxes/transfers and the allocation of responsibilities or elderly care between the federal and local levels have not received much attention. In this paper we aim at investigating these issues. We explore a model with congestion and agglomeration e¤ects in production in the big city. This gives rise to an unbalanced demo-graphic structure with a large proportion of young in the big city and a high proportion of elderly in small villages in the country side. We study and characterize the ine ¢ ciencies that arise because of individ-ualsfree location choice. Within a \u85scal federalism structure we also investigate what instruments that are needed in order to decentralize the second best policy