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What Social Security: Beveridgean or Bismarckian?

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  • J. Ignacio Conde-Ruiz
  • Paola Profeta

Abstract

Bismarckian social security systems are associated with larger public pension expenditures, a smaller fraction of private pension and lower income inequality than Beveridgean systems. This paper introduces a bidimensional voting model to account for all these features. Agents differ in age, income and in their ability to invest in the capital market. The voting game determines the degree of redistribution of the social security system -Bismarckian or Beveridgean- and the size of the transfer (for the low-income retirees). In an economy with three income groups, a small Beveridgean system is supported by low-income agents, who gain from its redistributive feature, and high-income individuals, who seek to minimize their tax contribution and to invest their resources in a private scheme. Middle- income individuals favor a large earning-related (Bismarckian) system. Hence, large (small) inequality is associated with a small Beveridgean (large Bismarckian) system and a large (small) private system.

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Paper provided by FEDEA in its series Working Papers with number 2003-16.

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Handle: RePEc:fda:fdaddt:2003-16

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  1. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, Springer, vol. 27(1), pages 63-90.
  2. 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).
  3. Tabellini, Guido, 2000. " A Positive Theory of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 102(3), pages 523-45, June.
  4. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "The Macroeconomics of Early Retirement," Working Papers, FEDEA 2003-05, FEDEA.
  5. CREMER, Helmuth & PESTIEAU, Pierre, . "Social insurance, majority voting and labor mobility," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1328, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. "Political sustainability and the design of social insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 75(3), pages 341-364, March.
  7. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Early retirement," Working Papers, FEDEA 2003-03, FEDEA.
  8. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262661314, December.
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Cited by:
  1. Dariusz Stanko, 2004. "Social Security in Theory and Practice: An Essay," Public Economics, EconWPA 0401007, EconWPA.
  2. Rainald Borck, 2003. "On the Choice of Public Pensions when Income and Life Expectancy Are Correlated," Discussion Papers of DIW Berlin, DIW Berlin, German Institute for Economic Research 369, DIW Berlin, German Institute for Economic Research.
  3. Juan Prieto & Juan Gabriel Rodríguez & Rafael Salas, . "Polarization, Inequality and Tax Reforms," Working Papers, FEDEA 2003-23, FEDEA.
  4. Rossignol, Stephane & Taugourdeau, Emmanuelle, 2004. "Social insurance with representative democracy," Economics Letters, Elsevier, Elsevier, vol. 82(1), pages 127-134, January.

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