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Licensed Unlicensed Requires Authentication Published by De Gruyter May 17, 2018

Illusory Gains from Privatizing Social Security when Reform is Politically Unstable

  • Marcin Bielecki , Krzysztof Makarski and Joanna Tyrowicz EMAIL logo


With compulsory funded public social security systems, pension savings constitute a large stock of assets. In this paper we consider an economy populated by overlapping generations, which may decide about abolishing the funded system and replacing it with the pay-as-you-go scheme (i.e. unprivatizing the pension system). We compare politically stable as well as politically unstable reforms and show that even if the funded system is overall welfare enhancing, the cohort distribution of benefits along the transition path may turn privatizing social security politically unsustainable.

JEL Classification: H55; D72; C68; E17; E27

Funding source: National Science Center

Award Identifier / Grant number: grant 2014/13/B/HS4/03264

Funding statement: The support of National Science Center (grant 2014/13/B/HS4/03264) is gratefully acknowledged.


Authors are grateful for insightful comments from the editor, Thomas Apolte, Roel Beetsma, Monika Buiter, Damiaan Chen, Nicoleta Ciurila, Hans Fehr, Vincenzo Galasso, Christian Geppert, Ward E. Romp, and Jan-Egbert Sturm as well as participants of Netspar Workshop, International Pension Day, Royal Economic Society Annual Meeting and European Public Choice Society Annual Meeting provided extremely useful comments. We are also grateful for remarks from participants of seminars at NBP, GRAPE, UoW, WSE. All opinions expressed are those of the authors and have not been endorsed by NSC nor NBP. The remaining errors are ours.


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Published Online: 2018-5-17

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