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The political economy of social security

  • CASAMATTA, Georges
  • CREMER , Helmuth
  • PESTIEAU, Pierre

We consider a two-period overlapping generations model in which individual voters differ not only according to age but also productivity. In such a setting, a (redistributive) Pay-As-You-Go system is politically sustainable, even when the interest rate is larger than the rate of population growth. The medium wages workers (not the lowest) join the retirees to form a majority and vote for a positive level of social security. This level depends on the difference between population growth and interest rate and on the redistributiveness of the benefit rule.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number 1475.

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Handle: RePEc:cor:louvrp:1475
Note: In : Scandinavian Journal of Economics, 102(3), 503-522, 2000
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  1. CASAMATTA, Georges & CREMER, Helmuth & PESTIEAU, Pierre, 1999. "The political economy of social security," CORE Discussion Papers 1999055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Hu, Sheng Cheng, 1982. "Social Security, Majority-Voting Equilibrium and Dynamic Efficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(2), pages 269-87, June.
  3. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. "Political sustainability and the design of social insurance," Journal of Public Economics, Elsevier, vol. 75(3), pages 341-364, March.
  4. Philippe De Donder & Jean Hindriks, 1998. "The political economy of targeting," Public Choice, Springer, vol. 95(1), pages 177-200, April.
  5. Tabellini, Guido, 1990. "A Positive Theory of Social Security," CEPR Discussion Papers 394, C.E.P.R. Discussion Papers.
  6. Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 1999. "Positive Arithmetic of the Welfare State," CEPR Discussion Papers 2202, C.E.P.R. Discussion Papers.
  7. 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.
  8. Boadway, R.W. & Wildasin, D.E., 1987. "A median voter model of social security," CORE Discussion Papers 1987014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Veall, Michael R., 1986. "Public pensions as optimal social contracts," Journal of Public Economics, Elsevier, vol. 31(2), pages 237-251, November.
  10. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February.
  11. repec:cup:cbooks:9780521497695 is not listed on IDEAS
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