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Electoral competition and the unfunding of public pension programs

Listed author(s):
  • Alvaro Forteza


    (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

Most public pension systems failed to build pension funds, even when it was clear that the benefits the systems were paying could not be sustained in the long run. I argue in this paper that politicians ruling public pension programs have strong incentives to exhaust the pension funds, offering generous pensions to old voters to raise the probability of winning the elections. Young voters do not support those electoral proposals to spend the pension fund, since a reduction of the fund will pull pensions down when they retire. The pension fund does not survive if old voters prevail, something that is likely to happen in the model in this paper despite of old voters being less than young voters. Electoral competition favors the elderly because they tend to be more willing to change their vote for a good pension than are young voters to change their vote for a larger pension fund.

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Paper provided by Department of Economics - dECON in its series Documentos de Trabajo (working papers) with number 0101.

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Length: 19 pages
Date of creation: Mar 2001
Handle: RePEc:ude:wpaper:0101
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