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The political economy of pension systems with low-skilled labor mobility: a crossss-country analysis

Author

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  • Ana Fontoura Gouveia

    (Nova School of Business and Economics)

Abstract

This paper analyzes the impact of international low-skilled labor mobility on the majority support for a pension system in individual countries and on the welfare of the different agents.’ The two countries considered differ in the amount of redistribution from the high to the low -skilled population embedded in their pay-as -you -go social security systems, whose size (tax rate) is decided by majority voting, anticipating the impact on mobility. We show that labor mobility can create the conditions for a majority to favor pensions in a Bismarckian country, due to the ageing of the population caused by the departure of the young mobile. In a Beveridgean country, mobility does not necessarily undermine the support for the system, but may make the conditions for its existence more stringent, even if no individual migrates in equilibrium. Finally, we show that while labor mobility is always politically sustainable in the non-redistributive country, its political feasibility is at stake in the country performing income redistribution through the pension system whenever the interest rate is not sufficiently large.

Suggested Citation

  • Ana Fontoura Gouveia, 2017. "The political economy of pension systems with low-skilled labor mobility: a crossss-country analysis," Notas Económicas, Faculty of Economics, University of Coimbra, issue 45, pages 27-48, December.
    • Handle: RePEc:gmf:journl:y:2017:i:45:p:27:48
    DOI: 10.14195/2183-203X_45_2
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    More about this item

    Keywords

    Pension systems; labor mobility; fiscal competition; political economy.;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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