Lessons for an Aging Society: The Political Sustainability of Social Security Systems
What is the future of social security systems in OECD countries? In our view, the answer belongs to the realm of politics. We evaluate how political constraints shape the social security system in six countries – France, Germany, Italy, Spain, the UK and the US – under population aging. Two main aspects of the aging process are relevant to the analysis. First, the increase in the dependency ratio – the ratio of retirees to workers – reduces the average profitability of the unfunded social security system, thereby inducing the agents to reduce the size of the system by substituting their claims towards future pensions with more private savings. Second, an aging electorate leads to larger systems, since it increases the relevance of pension spending on the policy-makers’ agenda. The overall assessment from our simulations is that the political aspect dominates in all countries, albeit with some differences. Spain, the fastest aging country, faces the largest increase in the social security contribution rate. When labor market considerations are introduced, the political effect still dominates, but it is less sizeable. Country specific characteristics (not accounted for in our simulations), such as the degree of redistribution in the pension system and the existence of family ties in the society, may also matter. Our simulations deliver a strong policy implication: an increase in the effective retirement age always decreases the size of the system chosen by the voters, while often increasing its generosity. Finally, delegation of pension policy to the EC may reduce political accountability and hence help to reform the systems.
|Date of creation:||2003|
|Contact details of provider:|| Postal: via Rontgen, 1 - 20136 Milano (Italy)|
Web page: http://www.igier.unibocconi.it/
|Order Information:|| Web: http://www.igier.unibocconi.it/en/papers/index.htm Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
- J. Ignacio Conde & Paola Profeta, 2002.
"What social security: Beveridgean or Bismarckian?,"
Economics Working Papers
633, Department of Economics and Business, Universitat Pompeu Fabra.
- 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.
- Casey B. Mulligan & Xavier Sala-i-Martin, 1999. "Gerontocracy, Retirement, and Social Security," NBER Working Papers 7117, National Bureau of Economic Research, Inc.
- Casey B Mulligan, 1999. "Gerontocracy, Retirement, and Social Security," University of Chicago - George G. Stigler Center for Study of Economy and State 154, Chicago - Center for Study of Economy and State.
- Peter Diamond, 2000.
"Social Security Reform,"
'Angelo Costa' Lectures Serie,
SIPI Spa, issue Lect. I, pages -.
- Epple, Dennis & Romano, Richard E., 1996. "Ends against the middle: Determining public service provision when there are private alternatives," Journal of Public Economics, Elsevier, vol. 62(3), pages 297-325, November.
- Conde-Ruiz, J.I. & Galasso, V., 2000.
Economics Working Papers
eco2000/24, European University Institute.
- 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 373-388, September.
- 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.
- CREMER, Helmuth & PESTIEAU, Pierre, "undated". "Reforming our pension system: is it a demographic, financial or political problem?," CORE Discussion Papers RP 1468, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Costa, Dora L., 1998.
"The Evolution of Retirement,"
National Bureau of Economic Research Books,
University of Chicago Press,
edition 1, number 9780226116082.
- J. Ignacio Conde-Ruiz & Vincenzo Galasso, "undated".
"The Macroeconomics of Early Retirement,"
- J. Ignacio Conde-Ruiz & Vincenzo Galasso, "undated". "The Macroeconomic of Early Retirement," Working Papers 194, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2003. "The Macroeconomics of Early Retirement," CEPR Discussion Papers 3896, C.E.P.R. Discussion Papers.
- Becker, Sascha O. & Bentolila, Samuel & Fernandes, Ana & Ichino, Andrea, 2004.
"Job Insecurity and Children’s Emancipation,"
IZA Discussion Papers
1046, Institute for the Study of Labor (IZA).
- CASAMATTA, Georges & CREMER, Helmuth & PESTIEAU, Pierre, "undated".
"Political sustainability and the design of social insurance,"
CORE Discussion Papers RP
1449, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- 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.
- Vincenzo Galasso, 1999. "The US Social Security System: What Does Political Sustainability Imply?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 698-730, July.
- Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, vol. 18(1), pages 1-29, March.
- Galasso, Vincenzo, 2000. "The US Social Security: A Financial Appraisal For The Median Voter," CEPR Discussion Papers 2456, C.E.P.R. Discussion Papers.
- Marcello D’Amato & Vincenzo Galasso, 2002.
"Assessing the Political Sustainability of Parametric Social Security Reforms: the Case of Italy,"
Giornale degli Economisti,
GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 61(2), pages 171-213, December.
- D'Amato, Marcello & Galasso, Vincenzo, 2002. "Assessing the Political Sustainability of Parametric Social Security Reforms: The Case of Italy," CEPR Discussion Papers 3439, C.E.P.R. Discussion Papers.
- Azariadis, Costas & Galasso, Vincenzo, 2002. "Fiscal Constitutions," Journal of Economic Theory, Elsevier, vol. 103(2), pages 255-281, April.
- Marco Manacorda & Enrico Moretti, 2002.
"Intergenerational Transfers and Household Structure. Why Do Most Italian Youths Live With Their Parents?,"
CEP Discussion Papers
dp0536, Centre for Economic Performance, LSE.
- Marco Manacorda & Enrico Moretti, 2002. "Intergenerational transfers and household structure: why do most Italian youths live with their parents?," LSE Research Online Documents on Economics 20078, London School of Economics and Political Science, LSE Library.
- Hansson, Ingemar & Stuart, Charles, 1989. "Social Security as Trade among Living Generations," American Economic Review, American Economic Association, vol. 79(5), pages 1182-1195, December.
- Thomas Cooley & Jorge Soares, 1999. "Privatizing Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 731-755, July.
- Tito Boeri & Axel Boersch-Supan & Guido Tabellini, 2002. "Pension Reforms and the Opinions of European Citizens," American Economic Review, American Economic Association, vol. 92(2), pages 396-401, May.
- Cremer, Helmuth & Pestieau, Pierre, 2002.
"The Double Dividend of Postponing Retirement,"
IDEI Working Papers
144, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003.
- Cremer, Helmuth & Pestieau, Pierre, 2003. "The Double Dividend of Postponing Retirement," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(4), pages 419-434, August.
When requesting a correction, please mention this item's handle: RePEc:igi:igierp:244. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.