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Demographic Shock and Social Security: A Political Economy Perspective

  • Georges Casamatta

    ()

  • Helmuth Cremer

    ()

  • Pierre Pestieau

    ()

We assume that individual voters differ not only according to age but also productivity. In the steady state, workers with wages in the intermediate range join the retired persons to form a majority and vote for a positive level of social security. When a shock decreases population growth, entrenched interests can constrain majority voting decisions and prevent reforms in the name of entitlements. We show that from a Rawlsian viewpoint it may be desirable to rely on these entitlements to protect the low wage earners of the transition generations. However, when the possibility of fixing a basic pension is introduced, it constitutes a better instrument than entitlements. Copyright Kluwer Academic Publishers 2001

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File URL: http://hdl.handle.net/10.1023/A:1011214823251
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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 8 (2001)
Issue (Month): 4 (August)
Pages: 417-431

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Handle: RePEc:kap:itaxpf:v:8:y:2001:i:4:p:417-431
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  1. Casey B. Mulligan & Xavier Sala-i-Martin, 1999. "Gerontocracy, retirement, and social security," Economics Working Papers 383, Department of Economics and Business, Universitat Pompeu Fabra.
  2. 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.
  3. Guido Tabellini, 1990. "A Positive Theory of Social Security," NBER Working Papers 3272, National Bureau of Economic Research, Inc.
  4. 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).
  5. Richard Disney, 1996. "Can We Afford to Grow Older?," MIT Press Books, The MIT Press, edition 1, volume 1, number 026204157x, June.
  6. Georges Casamatta, 2003. "The Political Power of the Retirees in a Two-Dimensional Voting Model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(4), pages 571-591, October.
  7. BOLDRIN, Michele & RUSTICHINI, Aldo, 1994. "Equilibria with Social Security," CORE Discussion Papers 1994060, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Boadway, Robin W & Wildasin, David E, 1989. "A Median Voter Model of Social Security," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 307-28, May.
  9. Cremer, Helmuth & Pestieau, Pierre, 2000. "Reforming our pension system: Is it a demographic, financial or political problem?," European Economic Review, Elsevier, vol. 44(4-6), pages 974-983, May.
  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.
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