A Matter of Trust: Understanding Worldwide Public Pension Conversions

56 Pages Posted: 9 May 2011 Last revised: 29 Oct 2014

See all articles by Kent A. Smetters

Kent A. Smetters

University of Pennsylvania - Business & Public Policy Department; National Bureau of Economic Research (NBER)

Walter Theseira

Nanyang Technological University

Multiple version iconThere are 2 versions of this paper

Date Written: May 2011

Abstract

This paper seeks to explain the key two stylized facts of fundamental reforms to social security systems worldwide: Why have so many countries reformed when traditional systems seem, at first glance, to have a higher probability of delivering a secure retirement income? Why have these reforms been larger in developing countries facing less severe demographic problems? We show that an OLG voter model can answer both questions. Larger reforms are motivated by a fundamental breakdown in intergenerational trust while smaller reforms are caused by a lack of trust in the ability of the government to save. Empirical analysis seems to support the model.

Suggested Citation

Smetters, Kent and Theseira, Walter, A Matter of Trust: Understanding Worldwide Public Pension Conversions (May 2011). NBER Working Paper No. w17015, Available at SSRN: https://ssrn.com/abstract=1833152

Kent Smetters (Contact Author)

University of Pennsylvania - Business & Public Policy Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6372
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Walter Theseira

Nanyang Technological University ( email )

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Singapore, 639798
Singapore

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