The Political (In)Stability of Funded Pension Systems
49 Pages Posted: 31 Mar 2020
There are 2 versions of this paper
The Political (In)Stability of Funded Pension Systems
The Political (In)stability of Funded Pension Systems
Date Written: 2020
Abstract
We analyze the political stability of capital funded social security. In particular, using a stylized theoretical framework we study the mechanisms behind governments capturing pension assets in order to lower current taxes. This is followed by an analysis of the analogous mechanisms in a fully-edged overlapping generations model with intra-cohort heterogeneity. Funding is efficient in a Kaldor-Hicks sense. Individuals vote on capturing the accumulated pension assets and replacing the funded pension pillar with a pay-as-you-go scheme. We show that even if capturing assets reduces welfare in the long run, it always has sufficient political support from those alive at the moment of the vote.
Keywords: funded pensions, asset capture, majority voting, welfare
JEL Classification: H550, D720, E170, E270
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