dc.description.abstract
Population aging and its profound consequences puts the sustainability of
pension systems in industrialized Western democracies at risk. Almost all
pensions systems in these countries are primarily based on a pay-as-you-go
(PAYG) principle. Hence, changes in pension benefits or contribution rates are
immediately felt by the participants of the system. Any change in a pension
system will thus involve winners and losers. Pension reforms are obviously a
very interesting and difficult to analyze policy field because they involve
policy changes that don't constitute mere Pareto improvements nor do they
easily allow the implementation of simple compensation schemes for the
distributional losers of a reform. To model the impact of population aging on
pension systems and their reform thus requires a profound understanding of
voters' preferences and of the political environment in which such an endeavor
is undertaken. This holds for any type of pension reform, regardless of
whether the reform is parametric (i.e.\ changes in the contribution rate,
benefit levels or eligibility rules) or non-parametric (partial or full
transitions to prefunded systems). Building on the current state of research
on pension systems and their reform, this dissertation sets out to, first,
review existing political economy models showing that pension policy is mainly
a political problem. Second, it will prove that any pension reform is by and
large a redistributional policy shift. Third and foremost, this dissertations
develops a political economy model of a pension system that explicitly
considers the political preferences of different age groups and also takes
into account some of the underlying political incentives generated by the size
of the pension system and the political environment. Hence, pension policy is
examined not in isolation but in view of the fiscal trade-offs made with
respect to other public policy goods. The resulting simple overlapping-
generations model allows for an easy derivation of the policy preferences of
different age groups. This alone, however, would be insufficient when
analyzing the prospects of a pension reform, since individual preferences need
to be aggregated through an electoral process. The existing political economy
literature has mainly analyzed this aggregation process by assuming the
existence of a direct democracy with popular referenda or by analyzing rather
simple settings of representative democracy, without properly taking into
account the impact of different types of electoral institutions. This
dissertation sets out to address this very shortcoming. In the research
tradition of modern political economy, it attempts to offer a theoretical
analysis by focusing on voters' policy preferences and the way in which these
preferences are aggregated through domestic electoral institutions. This focus
allows to derive different scenarios for the feasibility and direction of
pension reform. Finally, some hypotheses derived from the model are
tentatively tested using cross-national survey data of 21 countries provided
by the International Social Survey Programme. Following the introductory
chapter that puts this thesis into a theoretical and empirical context,
chapter 2 examines the premise that population aging has severe economic
consequences and strains existing pension systems. This is empirically fleshed
out by reviewing current demographic and economic long term projections
provided, among others, by the United Nations and the European Commission. It
is shown that aging has not only severe domestic and international
macroeconomic consequences but also leads to strong imbalances in current
pension systems. As a result, in many countries the present expected value of
future benefits is by no means matched by the present expected value of future
revenues. Chapter 3 reviews the existing formal political economy literature
on the existence and size of public pension systems, thereby also introducing
the concept of overlapping-generation models and explaining the necessary
notation. This review shows that pension systems can only be understood by
looking at the politics involved. Assuming, as part of the literature does,
that pension policy is decided in a direct democratic referendum represents a
valuable first attempt in understanding the underlying political processes.
These kinds of models show that coalition building might be important. The
literature has suggested that retirees and older workers may conspire, and
that an elaborated inter-generational punishment mechanism ensures
sustainability of the system once it has been introduced. Alternatively, it
has been proposed that intra-generational inequality leads poor workers to
team up with pensioners to push for public pension provision. Another factor
could be the existence of altruism that induces workers to consider the well-
being of the old, which in turn affects their voting behavior. The chapter
then shows that although being a valuable first step, the explanatory power of
these approaches is not fully satisfactory. Their Achilles' heel is the
assumption of a direct democracy. Clearly, pension politics in Western
countries takes place within the confines of a representative democracy. Some
models have explored this possibility. In one approach, more than one party
could wield influence by using the threat of a veto. Even more importantly,
workers and retirees might influence policy-making beyond the individual act
of voting. Hence, pensioners could be able to gain privileged access to a
government through lobbying and campaigning. If their thus defined political
power is greater than the power of workers, they may be able to push for
intergenerational transfers against the will of the young. One possible
explanation for the greater political leverage of the old could come from the
fact that they are more 'single-minded' and thus ideologically more
homogenous. Employing a probabilistic voting model suggests that in this case
electoral competition will induce office-motivated political parties to favor
the old in their electoral programmes. However, beyond these explanations,
political modeling has not gone much further in examining the political
rationale of public pension provision in a representative democracy. In
particular, despite the use of probabilistic voting models, the possible
impact of different electoral institutions has not been sufficiently analyzed
in the literature. Chapter 4 then clarifies what I mean by 'pension reform'.
It turns out that any change to a pension scheme, be it parametric or non-
parametric, is redistributional. Any reform will involve winners and loser and
is therefore a politically very contested issue. As a result, discussions
about whether to completely replace a PAYG system with a prefunded scheme are
often misleading. Neither of these two systems Pareto-dominates the other.
Transition from one to the other is always redistributional and both types of
schemes can be reformed to deal with the consequences of aging. Chapter 5
first develops a three-period overlapping-generations model to derive policy
preferences of individuals with respect to a public PAYG pension scheme,
taking the preferences for expenditures on other policy goods into account.
The results of the model are that, (1), preferences for a big public PAYG
system increase with age; and, (2), older workers policy preferences depend on
population growth and on the size of the existing pension scheme. Based on
these results, I then proceed to examine the political process. If voters'
preferences are aggregated through a direct referendum, then the prevailing
population growth rate is decisive, for it determines which age group contains
the pivotal median voter. If the median was a young worker, the public scheme
would be completely replaced by a prefunded system of individual saving. If
retirees were in a majority, the PAYG scheme would be preserved and any fiscal
imbalance in the system would be resolved through changes in the contribution
rate. Finally, if the median voter was an old worker, then reform outcomes
depend on the size of the existing pension scheme. If it is generous, old
workers are in favor of keeping it. Depending on its prevailing size relative
to what old workers consider as optimal, they may favor a reduction in its
overall generosity in favor of more prefunding. If the existing PAYG system is
small, old workers prefer its complete replacement with a prefunded system of
private saving. If policy preferences are aggregated within the framework of a
representative democracy, then the electoral system becomes important. This is
analyzed in the framework of a probabilistic voting model. Now the number of
swing voters turns out to be the decisive variable. Under proportional
representation, the group with the highest number of swing voters will find
their policy preferences catered to by the parties vying for office. This need
not be the case under majoritarian elections though. Here the number of swing
voters in the swing district becomes crucial. Therefore, under certain
conditions a pension reform to reduce the PAYG pillar and increase individual
prefunding may be feasible under proportional representation but not under
majoritarian elections. The latter therefore may allow smaller groups (i.e.\
groups with fewer politically important swing voters) to determine the pension
policies that parties propose. Chapter 6 explains that, due to data
limitations, a thorough econometric test of the reform scenarios and the
impact of electoral institutions is not feasible. This chapter does test the
two hypotheses related to individual policy preferences, however. Employing
logit and ordered-logit analyses of cross-national survey data of 21 countries
show that, as hypothesized, age is positively associated with preferences for
more public PAYG pension spending. Retirees are much more likely to favor
large pension systems than young workers. As predicted by the model, old
workers' preferences are more likely to be aligned with the interests of
pensioners in countries with generous public schemes and, regardless of the
existing size, when population growth is positive. In countries with negative
population growth rates, the odds are much higher that old workers join young
workers in preferring a smaller pension system. With respect to pension
reform, these results suggest that retirees are the most likely to oppose cuts
in public pensions, whereas young workers are the most likely to favor such
changes. The attitude of old workers ultimately depends on the degree of
population aging and the size of the existing pension system. As a result, the
main implications of the model are tentatively confirmed by the data. Finally,
chapter 7 summarizes premises, hypotheses and results of the thesis. It also
offers some thoughts on future avenues of research and future developments of
pension systems in industrialized countries.
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dc.description.abstract
Die Alterung der Gesellschaften in westlichen Industrieländern erhöht den
Anpassungsdruck für die bestehenden umlagefinanzierten Rentensysteme. Da diese
Form von Alterssicherungssystem die aktive mit der in Ruhestand befindlichen
Generation verbindet, hat jede mögliche Reform unmittelbare
verteilungspolitische Auswirkungen. Rentenreformen sind somit ein analytisch
besonders interessantes Politikfeld, da sie keine Pareto-Verbesserung
darstellen, sondern es immer verteilungspolitische Gewinner und Verlierer
gibt. Dies gilt sowohl für parametrische wie auch nicht-parametrische
Reformen. Trotz eines recht gleichförmigen Anpassungdruckes auf die
Alterssicherungssysteme westlicher Industrieländer können wir jedoch
unterschiedliche Anpassungsreaktionen beobachten, denn Richtung, Ausmaß und
politisch erfolgreiche Durchführung von Rentenreformen unterscheiden sich
erheblich. Ziel dieser Dissertation ist es, aus der Perspektive der modernen
Politischen Ökonomie einen Erklärungsbeitrag zu liefern, unter welchen
Bedingungen Reformen eher möglich sind und welche Formen der Anpassung zu
erwarten sind. Nach einer kurzen empirischen Illustration der ökonomischen und
finanziellen Konsequenzen von gesellschaftlichen Alterungsprozessen, führt die
Arbeit zunächst in die bestehende politik-ökonomische Literatur ein. Es zeigt
sich in dieser Forschung deutlich, dass Politik eine entscheidende Rolle für
die Erklärung von Existenz und Größe von Rentensystemen spielt. Es wird jedoch
auch deutlich, dass der politische Aggregationsprozess individueller
Wählerpräferenzen größtenteils vernachlässigt oder sehr vereinfacht
dargestellt wird. Besonders der Einfluss von elektoralen Institutionen ist
bisher nicht ausreichend gewürdigt worden. In einem nächsten Schritt wird
gezeigt, dass jede Art der Reform redistributiv ist und somit neben den
Gewinnern immer auch Umverteilungsverlierer produzieren wird. Kern der
Dissertation ist anschließend die Entwicklung eines dreistufigen Modells
überlappender Generationen (OLG). Dieses erlaubt die formale Analyse
individueller politischer Präferenzen. Es zeigt sich, dass politische
Präferenzen für ein großzügiges umlagefinanziertes Rentensystem mit dem
individuellen Lebensalter zunehmen. Als besonders interessant erweisen sich
die Ergebnisse für ältere Arbeitnehmer. Deren Zustimmung oder Ablehnung eines
staatlichen Umlagesystems hängen vom Grad der gesellschaftlichen Alterung und
der Größe des bestehenden Rentensystems ab. Nach der Analyse der
Wählerpräferenzen wendet sich die Arbeit dem politischen Aggregationsprozess
zu. Während in einer direkten Demokratie das Alter des Medianwählers
ausschlaggebend ist, tritt in repräsentativen Demokratien die Zahl der
Wechselwähler (swing voters) in den Vordergrund. Anhand eines
probabilistischen Wahlmodells lässt sich zeigen, dass unter bestimmten
Bedingungen die Art des Wahlsystems einen großen Einfluss auf die Realisierung
von Rentenreformen haben kann. Eine vergleichende Analyse von Mehrheits-- und
Verhältniswahlsystemen ergibt, dass in bestimmten Konstellationen große,
nicht-paramtetrische Reformen in Verhältniswahlsystemen wahrscheinlicher sein
könnten. Die Arbeit schließt mit einigen empirschen Überlegungen und Tests.
Die theoretischen Vorhersagen bezüglich des politischen Aggregationsprozesses
und dessen Auswirkungen auf Rentenreformen lassen sich nicht statistisch
prüfen. Jedoch können die Hypothesen zu individuellen Reformpräferenzen anhand
internationaler Surveydaten ökonometrisch getestet werden. Unter Verwendung
von Umfragedaten aus 21 westlichen Industrieländern lassen sich die Hypothesen
mit Hilfe von Logit- und ordinalen Logitschätzungen tentativ bestätigen.
Lebensalter, Alterungsprozess und Größe eines bestehenden umlagefinanzierten
Rentensystems haben einen statistisch belegbaren Einfluss auf individuelle
Reformpräferenzen.
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