The Stability and Growth Pact as an Impediment to Privatizing Social Security
NBER Working Paper No. 9278
The aging of the population shakes the confidence in the economic viability of pay-as-you-go social security systems. We demonstrate how in a political-economy framework the shaken cofidence leads to the downsizing of the social security-system, and to the emergence of supplemental individual retirement programs. Lifting the Stability-Pact type ceiling on fiscal deficits is shown to facilitate the transition from a national to a private pension system, through an endogenously determined shift in the median voter.
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