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A Matter of Trust: Understanding Worldwide Public Pension Conversions

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  • Kent Smetters
  • Walter E. Theseira

Abstract

This paper seeks to explain the key two stylized facts of fundamental reforms to social security systems worldwide: Why have so many countries reformed when traditional systems seem, at first glance, to have a higher probability of delivering a secure retirement income? Why have these reforms been larger in developing countries facing less severe demographic problems? We show that an OLG voter model can answer both questions. Larger reforms are motivated by a fundamental breakdown in intergenerational trust while smaller reforms are caused by a lack of trust in the ability of the government to save. Empirical analysis seems to support the model.

Suggested Citation

  • Kent Smetters & Walter E. Theseira, 2011. "A Matter of Trust: Understanding Worldwide Public Pension Conversions," NBER Working Papers 17015, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17015
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    References listed on IDEAS

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    6. Gruber, Jonathan & Wise, David, 1998. "Social Security and Retirement: An International Comparison," American Economic Review, American Economic Association, vol. 88(2), pages 158-163, May.
    7. Walker, Eduardo*Lefort, Fernando, 2002. "Pension reform and capital markets : are there any (hard) links?," Policy Research Working Paper Series 24082, The World Bank.
    8. Kent Smetters, 2004. "Is the Social Security Trust Fund a Store of Value?," American Economic Review, American Economic Association, vol. 94(2), pages 176-181, May.
    9. A. J. Auerbach & M. Feldstein (ed.), 2002. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 4, number 4.
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    Cited by:

    1. Erzo F. P. Luttmer & Andrew A. Samwick, 2018. "The Welfare Cost of Perceived Policy Uncertainty: Evidence from Social Security," American Economic Review, American Economic Association, vol. 108(2), pages 275-307, February.

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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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