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Demographic Shock and Social Security: A Political Economy Perspective

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Author Info

  • Georges Casamatta

    ()

  • Helmuth Cremer

    ()

  • Pierre Pestieau

    ()

Abstract

We assume that individual voters differ not only according to age but also productivity. In the steady state, workers with wages in the intermediate range join the retired persons to form a majority and vote for a positive level of social security. When a shock decreases population growth, entrenched interests can constrain majority voting decisions and prevent reforms in the name of entitlements. We show that from a Rawlsian viewpoint it may be desirable to rely on these entitlements to protect the low wage earners of the transition generations. However, when the possibility of fixing a basic pension is introduced, it constitutes a better instrument than entitlements. Copyright Kluwer Academic Publishers 2001

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 8 (2001)
Issue (Month): 4 (August)
Pages: 417-431

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Handle: RePEc:kap:itaxpf:v:8:y:2001:i:4:p:417-431

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: social security; majority voting; entitlements; aging;

References

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  1. Tabellini, Guido, 1990. "A Positive Theory of Social Security," CEPR Discussion Papers 394, C.E.P.R. Discussion Papers.
  2. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. "Political sustainability and the design of social insurance," Journal of Public Economics, Elsevier, vol. 75(3), pages 341-364, March.
  3. CASAMATTA, Georges & CREMER, Helmuth & PESTIEAU, Pierre, 1999. "The political economy of social security," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1999055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Richard Disney, 1996. "Can We Afford to Grow Older?," MIT Press Books, The MIT Press, edition 1, volume 1, number 026204157x, December.
  5. Casey B Mulligan, 1999. "Gerontocracy, Retirement, and Social Security," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 154, Chicago - Center for Study of Economy and State.
  6. Boadway, Robin W & Wildasin, David E, 1989. "A Median Voter Model of Social Security," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 307-28, May.
  7. CREMER, Helmuth & PESTIEAU, Pierre, . "Reforming our pension system: is it a demographic, financial or political problem?," CORE Discussion Papers RP -1468, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Georges Casamatta, 2003. "The Political Power of the Retirees in a Two-Dimensional Voting Model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(4), pages 571-591, October.
  9. BOLDRIN, Michele & RUSTICHINI, Aldo, 1994. "Equilibria with Social Security," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1994060, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 13(3), pages 373-88, September.
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Cited by:
  1. Marko Koethenbuerger & Panu Poutvaara & Paola Profeta, 2005. "Why are More Redistributive Social Security Systems Smaller? A Median Voter Approach," CESifo Working Paper Series 1397, CESifo Group Munich.
  2. Montén, Anna & Thum, Marcel, 2010. "Ageing municipalities, gerontocracy and fiscal competition," European Journal of Political Economy, Elsevier, vol. 26(2), pages 235-247, June.
  3. Cremer, Helmuth & Pestieau, Pierre, 2003. "Social insurance competition between Bismarck and Beveridge," Journal of Urban Economics, Elsevier, vol. 54(1), pages 181-196, July.
  4. Keuschnigg Christian & Keuschnigg Mirela, 2004. "Aging, Labor Markets and Pension Reform in Austria," GE, Growth, Math methods, EconWPA 0404002, EconWPA.
  5. Michael Berlemann & Marco Oestmann & Marcel Thum, 2010. "Demographic Change and Bank Profitability. Empirical Evidence from German Savings Banks," CESifo Working Paper Series 2911, CESifo Group Munich.
  6. Isilda Mara & Edlira Narazani, 2011. "Labour-incentive reforms at preretirement age in Austria," Empirica, Springer, Springer, vol. 38(4), pages 481-510, November.
  7. Ryo Arawatari & Tetsuo Ono, 2008. "Aging, Inequality and Social Security," Discussion Papers in Economics and Business 08-19, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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