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Politically stable pay-as-you-go pension systems: When the social-insurance budget is too small in a democracy

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  • Johann Brunner
  • Bengt-Arne Wickström

Abstract

The essay analyzes in an overlapping-generations model, to which extent a pay-as-you-go pension system will be the outcome of majority voting, given specific institutional set-ups. Clearly, the vote of an active person depends on his expectations about how the present decision (i.e., his contribution) is linked to the future (i.e., his benefits), when he will be retired. In the paper we employ the assumption of a basic social contract where each active voter's future benefits are positively related to his contributions. It is shown that in this framework a steady-state with a positive (though lower than optimal) level of the pension system exists, even if a new majority decision about the system takes place every period. Copyright Springer-Verlag 1993
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  • Johann Brunner & Bengt-Arne Wickström, 1993. "Politically stable pay-as-you-go pension systems: When the social-insurance budget is too small in a democracy," Journal of Economics, Springer, vol. 7(1), pages 177-190, December.
    • Handle: RePEc:kap:jeczfn:v:7:y:1993:i:1:p:177-190
    DOI: 10.1007/BF03052297
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    1. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-388, September.
    2. H. Verbon, 1987. "The rise and evolution of public pension systems," Public Choice, Springer, vol. 52(1), pages 75-100, January.
    3. Peter G. C. Townley, 1981. "Public Choice and the Social Insurance Paradox: A Note," Canadian Journal of Economics, Canadian Economics Association, vol. 14(4), pages 712-717, November.
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    Cited by:

    1. Henrik Petersen, Jorn, 1998. "Recent research on public pension systems. A review," Labour Economics, Elsevier, vol. 5(1), pages 91-108, March.

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