The Political Origin of Pension Funding

Enrico Perotti and Armin Schwienbacher

No 6100, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The paper seeks to explain the huge cross country variation in private pension funding, shaped by historical choice made when universal pension systems were created after the Great Depression. According to Perotti and von Thadden (2006), large inflationary shocks due to war damage devastated middle class savings in some countries in the first half of the XX century. This shaped political preferences over the role of capital markets and social insurance, and contributed to the Great Reversals documented by Rajan and Zingales (2003). Wealth distribution shocks are indeed strongly related to private pension funding, as a large shock reduces the stock of private retirement assets by 58% of GDP. The results are robust to controlling for other explanations, such as legal origin, original financial development, past and current demographics, religion, electoral voting rules, redistributive politics, national experiences with financial market performance, or other major financial shocks that were not specifically redistributive. Corroborating evidence indicates that such redistributive shocks help explain the cross country variation in social expenditures, state ownership of industry, and employment protection measures along the lines predicted by a political shift in affected countries.

Keywords: Inflationary shocks; Pension; Political economy; Redistribution; Retirement finance (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 J26 (search for similar items in EconPapers)
Date: 2007-02
New Economics Papers: this item is included in nep-cfn, nep-his and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: The political origin of pension funding (2009)
Working Paper: The Political Origin of Pension Funding (2008)
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