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

Johann Brunner () and Bengt-Arne Wickström

Journal of Economics, 1993, vol. 58, issue 1, 177-190

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

Date: 1993
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:58:y:1993:i:1:p:177-190

DOI: 10.1007/BF03052297

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