The political economy of pension systems under free labor mobility

Gouveia, Ana (2010): The political economy of pension systems under free labor mobility.

Abstract

This paper analyzes the impact of labor mobility on old-age pension systems. We develop a dynamic model, in a OLG setting, with national pay-as-you-go (PAYG) social security systems and two types of workers. The countries may differ in their Bismarckian or Beveridgean nature, i.e., the intragenerational redistribution level. The native population chooses a tax rate to finance the PAYG system by majority voting. After the voting decision has taken place, the low- skilled may migrate. Pensions are paid by the country where one works in the first period of life. We characterize the outcome of the voting game and show under which conditions (one or two) social security systems arise in equilibrium. The low-skilled always migrate from the less to the more intragenerational redistributive country. We analyze the welfare implications of mobility and show that the mobile population may loose, and the immobile may gain, from mobility. Finally, we show that the political equilibrium is generally inefficient.

• Item Type: MPRA Paper
• Language: English
• Keywords: Pension systems, Labor mobility, Fiscal competition, Political economy
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R23 - Regional Migration ; Regional Labor Markets ; Population ; Neighborhood Characteristics

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