The Political (In)stability of Funded Pension Systems

50 Pages Posted: 7 Apr 2020

See all articles by Roel M. W. J. Beetsma

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute; Netspar

Oliwia Komada

Warsaw School of Economics (SGH)

Krzysztof Makarski

Warsaw School of Economics (SGH)

Joanna Tyrowicz

University of Warsaw

Multiple version iconThere are 2 versions of this paper

Date Written: March 25, 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: H55, D72, E17, E27

Suggested Citation

Beetsma, Roel M. W. J. and Komada, Oliwia and Makarski, Krzysztof and Tyrowicz, Joanna, The Political (In)stability of Funded Pension Systems (March 25, 2020). Amsterdam Centre for European Studies Research Paper No. 2020/05, Available at SSRN: https://ssrn.com/abstract=3570475 or http://dx.doi.org/10.2139/ssrn.3570475

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )

P.O.Box 15867
Amsterdam
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+31 20 525 5280 (Phone)

European Commission ( email )

Rue de la Loi 200
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Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Germany

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Tinbergen Institute ( email )

Gustav Mahlerplein 117
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Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Oliwia Komada

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

Krzysztof Makarski

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

Joanna Tyrowicz (Contact Author)

University of Warsaw ( email )

Krakowskie Przedmiescie 26/28
Warszawa, Pl-00681
Poland

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