What Social Security: Beveridgean or Bismarckian?

UPF Economics and Business Working Paper No. 633

40 Pages Posted: 4 Jun 2003

See all articles by J. Ignacio Conde-Ruiz

J. Ignacio Conde-Ruiz

Foundation for Applied Economic Research (FEDEA)

Paola Profeta

Bocconi University - Department of Policy Analysis and Public Management; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 2002

Abstract

Why are Bismarckian social security systems associated with larger public pension expenditures, a smaller fraction of private pension and lower income in-equality than Beveridgean systems? These facts are puzzling for political economy theories of social security which predict that Beveridgean systems, involving intra-generational redistribution, should enjoy larger support among low-income people and thus be larger. This paper explains these features in a bidimensional political economy model. In an economy with three income groups, low-income support a large, redistributive system; middle-income favor an earning-related system, while high-income oppose any public system, since they have access to a superior saving technology, a private system. We show that, if income inequality is large, the voting majority of high-income and low-income supports a (small) Beveridgean system, and a large private pillar arises; the opposite occurs with low inequality. Additionally, when the capital market provides higher returns, a Beveridgean system is more likely to emerge.

Keywords: Political economy, public versus private social security, pensions system across european countries, income inequality, structure-induced equilibrium

JEL Classification: H53, H55, D72

Suggested Citation

Conde-Ruiz, J. Ignacio and Profeta, Paola, What Social Security: Beveridgean or Bismarckian? (July 2002). UPF Economics and Business Working Paper No. 633. Available at SSRN: https://ssrn.com/abstract=394286 or http://dx.doi.org/10.2139/ssrn.394286

J. Ignacio Conde-Ruiz

Foundation for Applied Economic Research (FEDEA) ( email )

Jorge Juan 46
Madrid, 28001
Spain
+34 91 435 9020 (Phone)
+34 91 577 9575 (Fax)

Paola Profeta (Contact Author)

Bocconi University - Department of Policy Analysis and Public Management ( email )

Via Roentgen 1
Milan, 20136
Italy

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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