Social Security in Theory and Practice (I): Facts and Political Theories

Abstract

166 countries have some kind of public old age pension. What economic forces create and sustain old age Social Security as a public program? We document some of the internationally and historically common features of Social Security programs including explicit and implicit taxes on labor supply, pay-as-you-go features, intergenerational redistribution, benefits which are increasing functions of lifetime earnings and not means-tested. We partition theories of Social Security into three groups: "political", "efficiency" and "narrative" theories. We explore three political theories in this paper: the majority rational voting model (with its two versions: "the elderly as the leaders of a winning coalition with the poor" and the "once and for all election" model), the "time-intensive model of political competition" and the "taxpayer protection model". Each of the explanations is compared with the international and historical facts. A companion paper explores the "efficiency" and "narrative" theories, and derives implications of all the theories for replacing the typical pay-as-you-go system with a forced savings plan.

See also the second part of the paper by Casey B. Mulligan and Xavier Sala-i-Martin "Social Security in Theory and Practice (II): Efficiency Theories"

Note: For journal readers: A related paper is available at the URL which follows this abstract. It is written in html. Cut and paste beginning with http:// and ending with the 5-digit number.

JEL Classification: H55