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The Political Feasibility of Privatizing Old-Age Insurance

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  • Georg Hirte

Abstract

Though a transition to a fully funded pension system is favoured by many economists, it is not even considered by politicians in Germany. This paper examines the hypothesis that this is in accordance with the preferences of the population. By performing a dynamic CGE analysis referenda on pension policies are simulated. They show that a fully privatizing scheme is not politically feasible in Germany, however long the pre-announcement period, if the alternatives are the current policy or a partially privatizing policy. This explains why a fully privatizing policy is not an issue in the political debate in Germany. In order to examine what are the reasons for this outcome, the German Bismarckian System is compared to a Beveridge-System which is similar to the British pension system. Actually, in the latter case, a transition to a fully funded system is what the majority opts for in a dynamically consistent equilibrium. This is evidence that the future of the pension system depends on its history. Copyright (c) Scottish Economic Society 2003.

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  • Georg Hirte, 2003. "The Political Feasibility of Privatizing Old-Age Insurance," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(4), pages 507-525, September.
  • Handle: RePEc:bla:scotjp:v:50:y:2003:i:4:p:507-525
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