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The Political Economy of Social Security

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  • Georges Casamatta
  • Helmuth Cremer
  • Pierre Pestieau

Abstract

We consider a two-period overlapping generations model in which individual voters differ by age and by productivity. In such a setting, a redistributive Pay-As-You-Go system is politically sustainable, even when the interest rate is larger than the rate of population growth. The workers with medium wages (not those with the lowest wages) and the retirees form a majority which votes for a positive level of social secur ity. This level depends on the difference between population growth and interest rate and on the redistributiveness of benefit rule.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2000/wp-cesifo-2000-03/cesifo_wp259.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 259.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_259

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Keywords: Social security; majority voting;

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  1. Boadway, R.W. & Wildasin, D.E., 1987. "A median voter model of social security," CORE Discussion Papers 1987014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Hu, Sheng Cheng, 1982. "Social Security, Majority-Voting Equilibrium and Dynamic Efficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(2), pages 269-87, June.
  3. Philippe De Donder & Jean Hindriks, 1998. "The political economy of targeting," Public Choice, Springer, vol. 95(1), pages 177-200, April.
  4. Veall, Michael R., 1986. "Public pensions as optimal social contracts," Journal of Public Economics, Elsevier, vol. 31(2), pages 237-251, November.
  5. Tabellini, Guido, 1990. "A Positive Theory of Social Security," CEPR Discussion Papers 394, C.E.P.R. Discussion Papers.
  6. Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 1999. "Positive Arithmetic of the Welfare State," CEPR Discussion Papers 2202, C.E.P.R. Discussion Papers.
  7. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February.
  8. CASAMATTA, Georges & CREMER, Helmuth & PESTIEAU, Pierre, . "Political sustainability and the design of social insurance," CORE Discussion Papers RP -1449, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. " The Political Economy of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 503-22, June.
  10. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-88, September.
  11. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, April.
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