Paper #384

Title:

Social security in theory and practice (I): Facts and political theories

Authors:

Casey B. Mulligan and Xavier Sala-i-Martin

Date:

April 1999

Abstract:

166 countries have some kind of public old age pension. What economic forces create and sustain old age Social Security as a public program? We document some of the internationally and historically common features of Social Security programs including explicit and implicit taxes on labor supply, pay-as-you-go features, intergenerational redistribution, benefits which are increasing functions of lifetime earnings and not means-tested. We partition theories of Social Security into three groups: "political", "efficiency" and "narrative" theories. We explore three political theories in this paper: the majority rational voting model (with its two versions: "the elderly as the leaders of a winning coalition with the poor" and the "once and for all election" model), the "time-intensive model of political competition" and the "taxpayer protection model". Each of the explanations is compared with the international and historical facts. A companion paper explores the "efficiency" and "narrative" theories, and derives implications of all the theories for replacing the typical pay-as-you-go system with a forced savings plan.

Keywords:

Social Security, retirement, gerontocracy, retirement incentives, political theories of Social Security

JEL codes:

H55

Area of Research:

Macroeconomics and International Economics

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