Working Paper: CEPR ID: DP4966
Authors: Gabrielle Demange
Abstract: An unfunded Social Security system faces a major risk, sometimes referred to as ?political risk?. In order to account properly for this risk, the paper considers a political process in which the support to the system is asked from each newborn generation. The analysis is conducted in an overlapping generations economy that is subject to macroeconomic shocks. As a consequence, the political support varies with the evolution of the economy. The impact of various factors ?intra-generational redistribution, risk aversion, financial markets, governmental debt- on the political sustainability of a pay-as-you-go system is discussed.
Keywords: intragenerational redistribution; overlapping generations; pay-as-you-go; political economy; risk; social security system
JEL Codes: C72; C78
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| risk aversion (D81) | sustainability of PAYG system (H55) |
| risk sharing considerations (G52) | sustainability of PAYG system (H55) |
| availability of financial markets (G19) | political sustainability of PAYG system (H55) |
| governmental debt (H63) | redistribution capabilities of PAYG system (H23) |