Working Paper: NBER ID: w3272
Authors: Guido Tabellini
Abstract: In many countries. social security is a large fraction of the government budget. Why is it, given that at any moment in time the number of recipients of social security benefits is smaller than the number of contributors? Kore generally, what determines the size of social security? To answer these questions, this paper studies an overlapping generations model in which all individuals currently alive vote on social security. There is no commitment to preserve the legislation inherited from the past. Voters are weakly altruistic and there is heterogeneity within each generation. The paper shows that in equilibrium the size of social security is larger the greater is the proportion of elderly people in the population, and the greater is the inequality of pretax income. Both predictions of the theory are supported by the empirical evidence in cross-country data.
Keywords: Social Security; Overlapping Generations; Income Inequality; Political Economy
JEL Codes: H55; D72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| proportion of elderly people in the population (J14) | size of social security (H55) |
| level of income inequality (D31) | size of social security (H55) |