Illusory Gains from Privatizing Social Security when Reform is Politically Unstable

Marcin Bielecki, Krzysztof Makarski and Joanna Tyrowicz

Peace Economics, Peace Science, and Public Policy, 2018, vol. 24, issue 2, 12

Abstract: With compulsory funded public social security systems, pension savings constitute a large stock of assets. In this paper we consider an economy populated by overlapping generations, which may decide about abolishing the funded system and replacing it with the pay-as-you-go scheme (i.e. unprivatizing the pension system). We compare politically stable as well as politically unstable reforms and show that even if the funded system is overall welfare enhancing, the cohort distribution of benefits along the transition path may turn privatizing social security politically unsustainable.

Keywords: pension system reform; time inconsistency; welfare (search for similar items in EconPapers)
JEL-codes: C68 D72 E17 E27 H55 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/peps-2018-0008

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