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Financial Development and Pay-As-You-Go Social Security

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  • Pinotti Paolo

    (Bank of Italy)

Abstract

Financial markets and pay-as-you-go social security are two alternative ways to provide for retirement. The size of social security programs could therefore be partly determined by the level of financial frictions. I explore this possibility by using legal origin as a proxy for financial frictions that may hold back financial development. The empirical analysis yields two main results. First, legal origin-driven differences in financial frictions are an important determinant of social security; in particular, common law countries exhibit significantly smaller public pension programs. Second, two-stage estimates suggest that legal origin impacts on social security through financial market development.

Suggested Citation

  • Pinotti Paolo, 2009. "Financial Development and Pay-As-You-Go Social Security," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-21, March.
    • Handle: RePEc:bpj:bejmac:v:9:y:2009:i:1:n:11
    DOI: 10.2202/1935-1690.1674
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    References listed on IDEAS

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