Political viability of public pensions and education. An empirical application

ABSTRACT

Public intergenerational transfers (IGTs) may emerge from the failure of private arrangements to provide optimal economic resources for the young and old. We investigate the political sustainability of the public system of IGTs by seeking to determine the outcome if the decision to reallocate economic resources per se was put to the vote. Exploiting the particular nature of the data from the National Transfer Accounts data in a political economy application in which generations cooperate under certain conditions, we show that most of the developed countries would vote in favour of a joint public education and pension system.

KEYWORDS:

• Intergenerational transfers
• population ageing
• pay-as-you-go financing
• National Transfer Accounts
• political economy

JEL CLASSIFICATION:

• D70
• H50
• J10
• P16.

Acknowledgments

We would like to thank the editor (David Peel) and two anonymous referees for helpful suggestions. We are also grateful to Ronald Lee, Edward Palmer, as well as the participants at the 5th International PhD Meeting in Economics 2017 (Thessaloniki, Greece) and the AGENTA Final Conference (Vienna, Austria) for valuable discussions and comments.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Peters (1995) and Boldrin and Montes (2005) consider endogenous human capital and Bental (1989) and Abio, Mahieu, and Patxot (2004) endogenous fertility.

² Bommier et al. (2010) more concerned with actuarial fairness rather than the political viability of public transfers, compute the present value in the United States showing that the most of the generations have been benefited from the introduction of public transfers.

³ NTA data are taken from Lee and Mason (2011) (http://www.ntaccounts.org/web/nta/show/Country%20Summaries): Austria(2000), Brazil(1996), Costa Rica(2004), Finland(2004), Germany(2003), Hungary(2005), India(2004), Japan(2004), Mexico(2004), Slovenia(2004), S. Korea(2000), Spain(2000), Sweden(2003), Taiwan(1998), Thailand(2004), US(2003).

⁴ The real interest rate (r) is taken from http://data.worldbank.org/indicator/FR.INR.RINR.

⁵ Note that cohort 9 votes against education.

⁶ Continuation value (CVs) are not reported. Bohn (1999) finds similar results calculating the CV of PAYG social security in the United States. He suggest that it is negative for the young voters but strictly positive for the voters above median voter age.

Additional information

Funding

This work was supported by the European Commission [Joint Programming Initiative (JPI), ‘More Years Better Lives (2016)’, WELTRANSIM Project]; the Catalan Government Science Network [Project number SGR2014-1257 and the Xarxa de Referencia en R+D+I en Economia i Poltiques Publiques (XREPP)]; and the Spanish Science and Technology System [Project number ECO2016-78991-R MINECO/FEDER and the Red de excelencia SIMBIEN Project number ECO2015-71981-REDT].