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

Abstract: 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: C68 D72 E17 E27 H55 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2017
New Economics Papers: this item is included in nep-age, nep-dge, nep-mac, nep-pbe and nep-pol
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http://grape.org.pl/WP/14_MakarskiTyrowicz_website.pdf (application/pdf)

Related works:
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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