A Positive Theory of Social Security

38 Pages Posted: 2 Feb 2001 Last revised: 6 Aug 2014

See all articles by Guido Tabellini

Guido Tabellini

Bocconi University - Department of Economics; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

Date Written: February 1990

Abstract

In many countries. social security is a large fraction of the government budget. Why is it, given that at any moment in time the number of recipients of social security benefits is smaller than the number of contributors? Kore generally, what determines the size of social security? To answer these questions, this paper studies an overlapping generations model in which all individuals currently alive vote on social security. There is no commitment to preserve the legislation inherited from the past. Voters are weakly altruistic and there is heterogeneity within each generation. The paper shows that in equilibrium the size of social security is larger the greater is the proportion of elderly people in the population, and the greater is the inequality of pretax income. Both predictions of the theory are supported by the empirical evidence in cross-country data.

Suggested Citation

Tabellini, Guido, A Positive Theory of Social Security (February 1990). NBER Working Paper No. w3272. Available at SSRN: https://ssrn.com/abstract=226723

Guido Tabellini (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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