Browsing by Subject "väestömuutokset"

The ageing population of the developed world questions the financial sustainability of the pay-as-you-go pension system, which redistributes income from the current working population to the retirees. The development has spurred a debate in the public and in academia regarding the future of the system. This thesis analyzes the political support of the pension system and the potential for reform, with a focus on the conflict of interest between young and old generations. The political support of the pension system is analyzed by surveying the two main theoretical modelling approaches of pension systems, and by analyzing one model of each approach in detail. In the majority voting approach, a pension system arises when at least half of the population has economic reasons to support it. Conde-Ruiz and Galasso (2005) model a pension system as the result of the support of retirees and low-income workers. The latter support the system because of its redistributive component that redistributes from rich to poor. The interest group approach focuses explicitly on the political competition between groups in society. If the elderly lobby is powerful enough, pension transfers that redistribute from young to old emerge as a result. In the model of Mulligan and Sala-i-Martin (1999), a pension system arises as the result of time-intensive competition. As the young are likely to become old and the old have lower labour productivity, the old have a larger incentive to use their time for political competition. An alternative interpretation is that the elderly are more single-minded, i.e. they have less diverse political goals. In addition to analyzing the two models above, the paper discusses them from an empirical and methodological point of view. Specifically, the controversial issue of applying economic methodology on political science is discussed. Finally, the thesis surveys political economy models that focus on the political sustainability of pension system reforms. Although the predictions on the potential for reform are pessimistic, recent empirical research suggests that the outlook may not be as gloomy as the models predict. Sources: Conde-Ruiz, J.I., Galasso, V., 2005: Positive arithmetic of the welfare state. Journal of Public Economics, 89, 933-955. Mulligan, C.B., Sala-i-Martin, X., 1999: Gerontocracy, Retirement, and Social Security. NBER working paper 7117, National Bureau of Economic Research. citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.200.5865&rep=rep1&type=pdf. Date: 26.4.2012.