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The Farm, the City, and the Emergence of Social Security

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Author Info
Elizabeth M. Caucutt
Thomas F. Cooley
Nezih Guner

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Abstract

During the period from 1880 to 1950, publicly managed retirement security programs became an important part of the social fabric in most advanced economies. In this paper we study the social, demographic and economic origins of social security. We describe a model economy in which demographics, technology, and social security are linked together. We study an economy with two locations (sectors), the farm (agricultural) and the city (industrial). The decision to migrate from rural to urban locations is endogenous and linked to productivity differences between the two locations and survival probabilities. Furthermore, the level of social security is determined by majority voting. We show that a calibrated version of this economy is consistent with the historical transformation in the United States. Initially a majority of voters live on the farm and do not want to implement social security. Once a majority of the voters move to the city, the median voter prefers a positive social security tax, and social security emerges.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12854.

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Date of creation: Jan 2007
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Handle: RePEc:nbr:nberwo:12854

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Find related papers by JEL classification:
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
H2 - Public Economics - - Taxation, Subsidies, and Revenue
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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