Reforming the Pay-As-You-Go Pension System: Who Votes for it ? When?

Abstract

We assess the political support for parametric reforms of the Pay-As-You-Go pension system following a downward fertility shock. Using a continuous time overlapping generations model, we argue that reforms that consist in cutting pension benefits or increasing the retirement age are likely to receive a strong political support. An increase in the contribution rate has, on the contrary, fewer chances to be approved by the majority of the voters. This framework also allows to identify the costs and benefits of postponing each type of reform and to determine how the timing of the different reforms affects their political support.

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Reference

Georges Casamatta, and Joao Luis Gondim, “Reforming the Pay-As-You-Go Pension System: Who Votes for it ? When?”, TSE Working Paper, n. 09-104, October 2009.