The Political Origin of Pension Funding

33 Pages Posted: 14 May 2008

See all articles by Enrico C. Perotti

Enrico C. Perotti

University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR)

Armin Schwienbacher

SKEMA Business School

Multiple version iconThere are 2 versions of this paper

Date Written: February 2007


This paper argues that historical political preferences on the role of capital markets shaped national choices on pension reliance on private funding. Under democratic voting, a majority will support investor protection and a privately funded pension system when the middle class has significant financial participation, while high wealth concentration favors a state-funded retirement system and weak investor rights. We present evidence that pension funding is well explained by wealth distribution shocks in the first half of the 20th Century. The effect is very significant: a large shock reduces the stock of private retirement assets by 58% of GDP. The results stand after controlling for complementary explanations, such as legal origin, past and current demographics, religion, electoral voting rules, national experiences with financial market performance, or other major financial shocks that were not specifically redistributive.

Keywords: Inflationary shocks, pension, political economy, redistribution, retirement finance

JEL Classification: G21, G28, G32, J26

Suggested Citation

Perotti, Enrico C. and Schwienbacher, Armin, The Political Origin of Pension Funding (February 2007). CEPR Discussion Paper No. DP6100, Available at SSRN:

Enrico C. Perotti (Contact Author)

University of Amsterdam - Finance Group ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)


Centre for Economic Policy Research (CEPR)

United Kingdom

Armin Schwienbacher

SKEMA Business School ( email )

Avenue Willy Brandt
Euralille, 59777


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