DP3621 | The Stability and Growth Pact as an Impediment to Privatizing Social Security

Publication Date

20/11/2002

JEL Code(s)

Keyword(s)

Programme Area(s)

Network(s)

Abstract

The ageing of the population shakes the confidence in the economic viability of pay-as-you-go social security systems. We demonstrate how in a political-economy framework the shaken confidence leads to the downsizing of the social security-system, and to the emergence of supplemental individual retirement programs. Lifting the Stability Pact-type ceiling on fiscal deficits is shown to facilitate the transition from a national to a private pension system, through an endogenously determined shift in the median voter.