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Financial Development and Pay-As-You-Go Social Security
1Bank of Italy, firstname.lastname@example.org
Citation Information: The B.E. Journal of Macroeconomics. Volume 9, Issue 1, Pages –, ISSN (Online) 1935-1690, DOI: 10.2202/1935-1690.1674, March 2009
- Published Online:
Financial markets and pay-as-you-go social security are two alternative ways to provide for retirement. The size of social security programs could therefore be partly determined by the level of financial frictions. I explore this possibility by using legal origin as a proxy for financial frictions that may hold back financial development. The empirical analysis yields two main results. First, legal origin-driven differences in financial frictions are an important determinant of social security; in particular, common law countries exhibit significantly smaller public pension programs. Second, two-stage estimates suggest that legal origin impacts on social security through financial market development.