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When the State Mirrors the Family: The Design of Pension Systems

  • Vincenzo Galasso
  • Paola Profeta

This paper studies the transmission mechanism from family culture to economic institutions, by analyzing the impact of the within family organization on the original design of the public pension systems. We build a simple OLG model with families featuring either weak or strong internal ties. When pensions systems are initially introduced, in society with strong ties they replicate the tight link between generations by providing earnings related benefits; whereas in societies with weak family ties they only act as a safety net. To test this transition mechanism, we consider Todd (1982) historical classification of family types across countries. We find that in societies dominated by absolute nuclear families (i.e., weak family ties), pension systems act as a flat safety net entailing a large within-cohort redistribution, and viceversa in societies characterized by stronger family ties where pension systems are more generous. This link between the type of families and the design of pension systems is robust to testing for alternative explanations, such as legal origin, religion, urbanization and democratization of the country at the time of their introduction. Interestingly, historical family types matter for explaining the design of the pension systems, which represents a persistent feature, but not their size, which have largely changed over time.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3191.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3191
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  1. Vincenzo Galasso & Roberta Gatti & Paola Profeta, 2009. "Investing for the old age: pensions, children and savings," International Tax and Public Finance, Springer, vol. 16(4), pages 538-559, August.
  2. Caucutt, Elizabeth & Cooley, Thomas F & Guner, Nezih, 2007. "The Farm, the City and the Emergence of Social Security," CEPR Discussion Papers 6131, C.E.P.R. Discussion Papers.
  3. Disney, Richard, 2007. "Population ageing and the size of the welfare state: Is there a puzzle to explain?," European Journal of Political Economy, Elsevier, vol. 23(2), pages 542-553, June.
  4. Koethenbuerger, Marko & Poutvaara, Panu & Profeta, Paola, 2005. "Why Are More Redistributive Social Security Systems Smaller? A Median Voter Approach," IZA Discussion Papers 1831, Institute for the Study of Labor (IZA).
  5. Alesina, Alberto F & Algan, Yann & Cahuc, Pierre & Giuliano, Paola, 2010. "Family Values and the Regulation of Labor," CEPR Discussion Papers 7688, C.E.P.R. Discussion Papers.
  6. Alessandra Fogli & Raquel Fernandez, 2005. "Culture: An Empirical Investigation of Beliefs, Work, and Fertility," Working Papers 05-07, New York University, Leonard N. Stern School of Business, Department of Economics.
  7. Tim Krieger & Stefan Traub, 2008. "Back to Bismarck? Shifting Preferences for Intragenerational Redistribution in OECD Pension Systems," Working Papers CIE 13, University of Paderborn, CIE Center for International Economics.
  8. Alesina, Alberto & Giuliano, Paola, 2007. "The Power of the Family," IZA Discussion Papers 2750, Institute for the Study of Labor (IZA).
  9. Gilles Duranton & Andrés Rodríguez-Pose & Richard Sandall, 2008. "Family types and the persistence of regional disparities in Europe," Working Papers 2008-07, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  10. repec:crr:crrwps:2004-07 is not listed on IDEAS
  11. Vincenzo Galasso & Paola Profeta, 2003. "Lessons for an Aging Society: The Political Sustainability of Social Security Systems," Working Papers 244, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  12. Vincenzo Galasso, 2006. "The Political Future of Social Security in Aging Societies," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072734, June.
  13. J. Ignacio Conde-Ruiz & Paola Profeta, 2007. "The Redistributive Design of Social Security Systems," Economic Journal, Royal Economic Society, vol. 117(520), pages 686-712, 04.
  14. David M. Cutler & Richard Johnson, 2001. "The birth and growth of the social-insurance state : explaining old-age and medical insurance across countries," Research Working Paper RWP 01-13, Federal Reserve Bank of Kansas City.
  15. Lindert Peter H., 1994. "The Rise of Social Spending, 1880-1930," Explorations in Economic History, Elsevier, vol. 31(1), pages 1-37, January.
  16. Cutler, David & Johnson, Richard, 2004. "The Birth and Growth of the Social Insurance State: Explaining Old-Age and Medical Insurance Across Countries," Scholarly Articles 2643658, Harvard University Department of Economics.
  17. repec:cup:cbooks:9780521855266 is not listed on IDEAS
  18. Licht, Amir N. & Goldschmidt, Chanan & Schwartz, Shalom H., 2007. "Culture rules: The foundations of the rule of law and other norms of governance," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 659-688, December.
  19. Pinotti Paolo, 2009. "Financial Development and Pay-As-You-Go Social Security," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-21, March.
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