Generation Inequality in an Aging Society: The Demographic Welfare Dilemma

ABSTRACT This study provides empirical evidence that Japanese local governments have political incentives to prioritize policies favoring the elderly population in order to secure electoral support. Such preferences may come at the expense of the younger generation, whose presence is often associated with reduced short‐term political performance. To evaluate these dynamics, a well‐being index is constructed using tax and GDP rankings, allowing for the classification of prefectures into optimistic (positive index) and pessimistic (negative index) categories. The impact of the younger generation on political performance is shown to vary significantly across these regions. In optimistic prefectures, a higher proportion of young people contributes positively to local development, while in pessimistic prefectures, the same demographic composition is associated with diminished political performance. Local governments may seek short‐term gains by adopting elderly‐focused policies; however, if these come at the cost of investments in youth—particularly in education—they risk long‐term economic decline due to outmigration and reduced productivity. The analysis further shows that a larger youth population is associated with stronger future political performance through higher tax revenues and improved GDP rankings. Such generational bias, if left unaddressed, may undermine future productivity and exacerbate the social and economic consequences of demographic decline. As previous research has highlighted, more proactive immigration policies at the prefectural level may offer a viable approach to addressing the challenges of population aging, potentially reducing the need to reallocate limited resources away from the younger generation.