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Privatizing Social Security Under Balanced-Budget Constraints: A Political-Economy Approach

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  • Assaf Razin
  • Efraim Sadka

Abstract

The aging of the population shakes the public finance of pay-as-you-go social security systems. We develop a political-economy framework in which this demographic change leads to the downsizing of the social security system, and, as a consequence, to the emergence of supplemental individual retirement programs. Making the balanced-budget rule (of the type of the Stability and Growth Pact in the EU) more flexible, to accommodate a one-shot cost of the social security reforms, is shown to facilitate the political-economy transition from a national to a private pension system, through an endogenously determined shift in the political-economy equilibrium

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1039.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1039

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  1. Peter Diamond & John Geanakoplos, 1999. "Social Security Investment in Equities I: Linear Case," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 99-10, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Thomas Cooley & Jorge Soares, 1999. "Privatizing Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 731-755, July.
  3. Razin, Assaf & Sadka, Efraim & Swagel, Phill, 2001. "The Aging Population and the Size of the Welfare State," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2930, C.E.P.R. Discussion Papers.
  4. Razin, Assaf & Sadka, Efraim, 1995. "Resisting Migration: Wage Rigidity and Income Distribution," American Economic Review, American Economic Association, American Economic Association, vol. 85(2), pages 312-16, May.
  5. Bohn, Henning, 1999. "Will social security and Medicare remain viable as the U.S. population is aging?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 50(1), pages 1-53, June.
  6. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(1), pages 135-160, February.
  7. Corsetti, Giancarlo & Devereux, Michael P. & Guiso, Luigi & Hassler, John & Saint-Paul, Gilles & Sinn, Hans-Werner & Sturm, Jan-Egbert & Vives, Xavier, 2010. "The European economy," Munich Reprints in Economics, University of Munich, Department of Economics 20104, University of Munich, Department of Economics.
  8. Saint-Paul, Gilles, 1994. "Unemployment, wage rigidity, and the returns to education," European Economic Review, Elsevier, Elsevier, vol. 38(3-4), pages 535-543, April.
  9. Phillip Swagel & Efraim Sadka & Assaf Razin, 2002. "The Aging of the Population and the Size of the Welfare State," IMF Working Papers 02/68, International Monetary Fund.
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Cited by:
  1. Theodore C. Bergstrom & John L. Hartman, 2005. "Demographics and the Political Sustainability of Pay-as-you-go Social Security," CESifo Working Paper Series 1378, CESifo Group Munich.
  2. Mauro Visaggio, 2004. "Does Stability and Growth Pact Provide an Adequate and Consistent Fiscal Rule?," Macroeconomics, EconWPA 0407008, EconWPA.

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