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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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-09/cesifo1_wp3191.pdf
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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. repec:crr:crrwps:2004-07 is not listed on IDEAS
  2. David M. Cutler & Richard Johnson, 2004. "The Birth and Growth of the Social Insurance State: Explaining Old Age and Medical Insurance Across Countries," Public Choice, Springer, vol. 120(1_2), pages 87-121, 07.
  3. Vincenzo Galasso & Paola Profeta, 2004. "Lessons for an ageing society: the political sustainability of social security systems," Economic Policy, CEPR;CES;MSH, vol. 19(38), pages 63-115, 04.
  4. Alesina, Alberto & Algan, Yann & Cahuc, Pierre & Giuliano, Paola, 2010. "Family Values and the Regulation of Labor," IZA Discussion Papers 4747, Institute for the Study of Labor (IZA).
  5. Elizabeth M. Caucutt & Thomas F. Cooley & Nezih Guner, 2012. "The Farm, the City, and the Emergence of Social Security," UFAE and IAE Working Papers 923.12, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  6. 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.
  7. Marko Koethenbuerger & Panu Poutvaara & Paola Profeta, 2005. "Why are More Redistributive Social Security Systems Smaller? A Median Voter Approach," CESifo Working Paper Series 1397, CESifo Group Munich.
  8. Galasso, Vincenzo & Gatti, Roberta & Profeta, Paola, 2008. "Investing for the old age : pensions, children and savings," Social Protection Discussion Papers 47101, The World Bank.
  9. 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.
  10. 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.
  11. Amir N. Licht & Chanan Goldschmidt & Shalom H. Schwartz, 2003. "Culture Rules: The Foundations of the Rule of Law and Other Norms of Governance," William Davidson Institute Working Papers Series 2003-605, William Davidson Institute at the University of Michigan.
  12. Alesina, Alberto & Giuliano, Paola, 2007. "The Power of the Family," IZA Discussion Papers 2750, Institute for the Study of Labor (IZA).
  13. repec:cup:cbooks:9780521855266 is not listed on IDEAS
  14. J. Ignacio Conde-Ruiz & Paola Profeta, 2007. "The Redistributive Design of Social Security Systems," Working Papers 2007-07, FEDEA.
  15. Gilles Duranton & Andrés Rodríguez-Pose & Richard Sandall, 2008. "Family Types and the Persistence of Regional Disparities in Europe," SERC Discussion Papers 0009, Spatial Economics Research Centre, LSE.
  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. 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.
  18. Lindert Peter H., 1994. "The Rise of Social Spending, 1880-1930," Explorations in Economic History, Elsevier, vol. 31(1), pages 1-37, January.
  19. 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.
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