This paper examines the intragenerational redistribution aspect of social security. The level of social security is determined by majority voting between individuals who differ (ex-ante) in their earning ability and life expectancy. Given incentive effects, the voting equilibrium depends on balancing the redistributive gains that social security provides to a majority against the efficiency costs of distorting economic behaviour. The impact of alternative benefit structures on the equilibrium level of social security is analysed. It is shown that the conventional wisdom stating that "tightening the link" between benefits and contributions will reduce the distortionary effect of social security does not survive the introduction of political economy considerations. We also show that the introduction of means-testing does not necessarily lead to a decrease in the size of social security. The impact on the equilibrium level of social security of a correlation between productivity and the probability of receiving benefits is also analysed.
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Paper provided by University of Exeter, School of Business and Economics in its series Discussion Papers with number
99/21.
Length: 20 pages Date of creation: 1999 Date of revision: Handle: RePEc:fth:exetec:99/21
Contact details of provider: Postal: School of Business and Economics University of Exeter Streatham Court Rennes Drive Exeter EX4 4PU Phone: (01392) 263218 Fax: (01392) 263242 Web page: http://www.exeter.ac.uk/sobe/ More information through EDIRC
Find related papers by JEL classification: D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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