Political (in)stability of social security reform
Krzysztof Makarski () and
Joanna Tyrowicz ()
No 14, GRAPE Working Papers from GRAPE Group for Research in Applied Economics
We analyze the political stability social security reforms which introduce a funded pillar (a.k.a. privatizations). We consider an economy populated by overlapping generations, which introduces a funded pillar. This reform is efficient in Kaldor-Hicks sense and has political support. Subsequently, agents vote on abolishing the funded system and replacing it with the pay-as-you-go scheme, i.e. “unprivatizing” the pension system. We show that even if abolishing the system reduces welfare in the long run, the distribution of benefits across cohorts along the transition path implies that “unprivatizing” social security is always politically favored. This suggests that property rights definition over retirement savings may be of crucial importance for determining the stability of retirement systems with a funded pillar.
Keywords: majority voting; pension system reform; welfare (search for similar items in EconPapers)
JEL-codes: H55 D72 C68 E17 E27 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dge, nep-mac, nep-pbe and nep-pol
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Working Paper: Political (In)Stability of Social Security Reform (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fme:wpaper:14
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