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Lessons for an ageing society: the political sustainability of social security systems

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Author Info
Vincenzo Galasso
Paola Profeta

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Abstract

"What is the future of social security systems in OECD countries? We suggest that the answer belongs to the realm of politics, and evaluate how political constraints and ageing shape the social security system. The increasing ratio of retirees to workers lowers the rate of returns of unfunded pay-as-you-go social security, and induces citizens to prefer smaller such systems and a larger role for private savings. An ageing electorate, however, increases the relevance of pension spending on the agenda of office-seeking policy-makers and tends to increase the size of unfunded pension systems. Calibrating the strength of these effects for France, Germany, Italy, Spain, the UK and the US, we find that the latter political aspect always outweighs the former. The relative size of the effects depends on country-specific characteristics and modelling details: when labour market distortions are accounted for the political effect still dominates but becomes less sizeable; the different redistributive character of pension systems and the strength of family ties also play a role in determining politico-economic outcomes. A higher effective retirement age always decreases the size of the system chosen by the voters, often increases its generosity, and may be the only viable solution to pension system problems in the face of population ageing." Copyright © CEPR, CES, MSH, 2004..

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0327.2004.00119.x
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Article provided by CEPR, CES, MSH in its journal Economic Policy.

Volume (Year): 19 (2004)
Issue (Month): 38 (04)
Pages: 63-115
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Handle: RePEc:bla:ecpoli:v:19:y:2004:i:38:p:63-115

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Azariadis, Costas & Galasso, Vincenzo, 2002. "Fiscal Constitutions," Journal of Economic Theory, Elsevier, vol. 103(2), pages 255-281, April. [Downloadable!] (restricted)
  2. Cremer, Helmuth & Pestieau, Pierre, 2000. "Reforming our pension system: Is it a demographic, financial or political problem?," European Economic Review, Elsevier, vol. 44(4-6), pages 974-983, May. [Downloadable!] (restricted)
  3. Tito Boeri & Axel Boersch-Supan & Guido Tabellini, 2002. "Pension Reforms and the Opinions of European Citizens," American Economic Review, American Economic Association, vol. 92(2), pages 396-401, May. [Downloadable!]
  4. CREMER, Helmuth & PESTIEAU, Pierre, 2002. "The Double Dividend of Postponing Retirement," IDEI Working Papers 144, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003. [Downloadable!]
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  5. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "The Macroeconomics of Early Retirement," Working Papers 2003-05, FEDEA. [Downloadable!]
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  6. Vincenzo Galasso, 1999. "The US Social Security System: What Does Political Sustainability Imply?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 698-730, July. [Downloadable!] (restricted)
  7. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. "Political sustainability and the design of social insurance," Journal of Public Economics, Elsevier, vol. 75(3), pages 341-364, March. [Downloadable!] (restricted)
  8. Marco Manacorda & Enrico Moretti, 2002. "Intergenerational Transfers and Household Structure. Why Do Most Italian Youths Live With Their Parents?," CEP Discussion Papers dp0536, Centre for Economic Performance, LSE. [Downloadable!]
  9. Hansson, Ingemar & Stuart, Charles, 1989. "Social Security as Trade among Living Generations," American Economic Review, American Economic Association, vol. 79(5), pages 1182-95, December. [Downloadable!] (restricted)
  10. Epple, Dennis & Romano, Richard E., 1996. "Ends against the middle: Determining public service provision when there are private alternatives," Journal of Public Economics, Elsevier, vol. 62(3), pages 297-325, November. [Downloadable!] (restricted)
  11. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Oxford University Press, vol. 13(3), pages 373-88, September.
  12. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, vol. 18(1), pages 1-29, March. [Downloadable!] (restricted)
  13. Thomas Cooley & Jorge Soares, 1999. "Privatizing Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 731-755, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Paola Profeta, 2008. "Political Support and Tax Reforms: An Italian Example," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 6(1), pages 32-36, 04. [Downloadable!]
  2. Matteo Bassi, 2008. "An Egg Today and a Chicken Tomorrow: A Model of Social Security with Quasi-Hyperbolic Discounting," CSEF Working Papers 205, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  3. J. Ignacio Conde-Ruiz & Vincenzo Galasso & Paola Profeta, 2006. "Early Retirement and Social Security: A Long Term Perspective," CSEF Working Papers 165, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
    Other versions:
  4. Marko Köthenbürger & Panu Poutvaara & Paola Profeta, 2005. "Why are More Redistributive Social Security Systems Smaller? A Median Voter Approach," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  5. Agar Brugiavini & Vincenzo Galasso, 2003. "The Social Security Reform Process in Italy: Where do We Stand?," Working Papers wp052, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
    Other versions:
  6. Ryo Arawatari & Tetsuo Ono, 2008. "Aging, Inequality and Social Security," Discussion Papers in Economics and Business 08-19, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP). [Downloadable!]
  7. Gilles Le Garrec, 2005. "Systèmes de retraite et vieillissement," Documents de Travail de l'OFCE 2005-21, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  8. J. Ignacio Conde-Ruiz & Paola Profeta, 2007. "The Redistributive Design of Social Security Systems," Working Papers 2007-07, FEDEA. [Downloadable!]
    Other versions:
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