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The Farm, the City, and the Emergence of Social Security

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  • Elizabeth M. Caucutt
  • Thomas F. Cooley
  • Nezih Guner

Abstract

During the period from 1880 to 1950, publicly managed retirement security programs became an important part of the social fabric in most advanced economies. In this paper we study the social, demographic and economic origins of social security. We describe a model economy in which demographics, technology, and social security are linked together. We study an economy with two locations (sectors), the farm (agricultural) and the city (industrial). The decision to migrate from rural to urban locations is endogenous and linked to productivity differences between the two locations and survival probabilities. Furthermore, the level of social security is determined by majority voting. We show that a calibrated version of this economy is consistent with the historical transformation in the United States. Initially a majority of voters live on the farm and do not want to implement social security. Once a majority of the voters move to the city, the median voter prefers a positive social security tax, and social security emerges.

Suggested Citation

  • Elizabeth M. Caucutt & Thomas F. Cooley & Nezih Guner, 2007. "The Farm, the City, and the Emergence of Social Security," NBER Working Papers 12854, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12854
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    Cited by:

    1. Doepke, M. & Tertilt, M., 2016. "Families in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    2. Balestrino, Alessandro & Ciardi, Cinzia & Mammini, Claudio, 2013. "On the causes and consequences of divorce," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 45(C), pages 1-9.
    3. Vincenzo Galasso & Paola Profeta, 2010. "When the State Mirrors the Family: The Design of Pension Systems," CESifo Working Paper Series 3191, CESifo Group Munich.
    4. Perotti, Enrico & Schwienbacher, Armin, 2009. "The political origin of pension funding," Journal of Financial Intermediation, Elsevier, vol. 18(3), pages 384-404, July.
    5. Lopez-Velasco, Armando R., 2016. "Solving dynamic inefficiency with politically sustainable guest worker programs," Economics Letters, Elsevier, vol. 148(C), pages 1-4.
    6. Jialu Liu, 2011. "Human capital, migration and rural entrepreneurship in China," Indian Growth and Development Review, Emerald Group Publishing, vol. 4(2), pages 100-122, September.
    7. Peter Egger & Doina Radulescu & Nora Strecker, 2017. "On the spread of social protection systems," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(4), pages 550-574, August.
    8. Vincenzo Galasso & Paola Profeta, 2013. "From Family Culture to Welfare State Design," CHILD Working Papers Series 14, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.
    9. Rizzo, Giuseppe, 2009. "Fertility and pension systems," MPRA Paper 12998, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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