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The Farm, the City, and the Emergence of Social Security

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  • Elizabeth M. Caucutt
  • Thomas F. Cooley
  • Nezih Guner

Abstract

We study the social, demographic and economic origins of social security. The data for the U.S. and for a cross section of countries suggest that urbanization and industrialization are associated with the rise of social insurance. We describe an OLG model in which demographics, technology, and social security are linked together in a political economy equilibrium. In the model economy, there are two locations (sectors), the farm (agricultural) and the city (industrial) and the decision to migrate from rural to urban locations is endogenous and linked to productivity differences between the two locations and survival probabilities. Farmers rely on land inheritance for their old age and do not support a pay- as-you-go social security system. With structural change, people migrate to the city, the land loses its importance and support for social security arises. We show that a calibrated version of this economy, where social security taxes are determined by majority voting, is consistent with the historical transformation in the United States.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 672.

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Date of creation: Nov 2012
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Handle: RePEc:bge:wpaper:672

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Keywords: social security; political economy; structural change; migration;

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References

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Citations

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Cited by:
  1. Vincenzo Galasso & Paola Profeta, 2010. "When the State Mirrors the Family: The Design of Pension Systems," CESifo Working Paper Series 3191, CESifo Group Munich.
  2. Rizzo, Giuseppe, 2009. "Fertility and pension systems," MPRA Paper 12998, University Library of Munich, Germany.
  3. Balestrino, Alessandro & Ciardi, Cinzia & Mammini, Claudio, 2013. "On the causes and consequences of divorce," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 45(C), pages 1-9.
  4. Vincenzo Galasso & Paola Profeta, 2013. "From Family Culture to Welfare State Design," CHILD Working Papers Series 14, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.
  5. repec:dgr:uvatin:2007004 is not listed on IDEAS
  6. Perotti, Enrico & Schwienbacher, Armin, 2009. "The political origin of pension funding," Journal of Financial Intermediation, Elsevier, vol. 18(3), pages 384-404, July.
  7. Jialu Liu, 2011. "Human capital, migration and rural entrepreneurship in China," Indian Growth and Development Review, Emerald Group Publishing, vol. 4(2), pages 100-122, September.

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