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The Political (In)Stability of Funded Pension Systems

Author

Listed:
  • Roel Beetsma
  • Oliwia Komada
  • Krzysztof Makarski
  • Joanna Tyrowicz
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.

Suggested Citation

  • Roel Beetsma & Oliwia Komada & Krzysztof Makarski & Joanna Tyrowicz, 2020. "The Political (In)Stability of Funded Pension Systems," CESifo Working Paper Series 8176, CESifo.
    • Handle: RePEc:ces:ceswps:_8176
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    More about this item

    Keywords

    funded pensions; asset capture; majority voting; welfare;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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