The Political Economy of Social Security
29 Pages Posted: 8 Feb 2001
Date Written: March 2000
We consider a two-period overlapping generations model in which individual voters differ by age and by productivity. In such a setting, a redistributive Pay-As-You-Go system is politically sustainable, even when the interest rate is larger than the rate of population growth. The workers with medium wages (not those with the lowest wages) and the retirees form a majority which votes for a positive level of social security. This level depends on the difference between population growth and interest rate and on the redistributiveness of the benefit rule.
Keywords: Social security, majority voting
JEL Classification: H55, O41, O9
Suggested Citation: Suggested Citation