European Economic Policy

[ Ph. D Oliver Pamp ]

[ Ezoneplus ]

Outline

Population aging is expected to strain economies and fiscal budgets throughout the industrialized world. The need for pension reform in almost all these countries is widely discussed. However, countries differ markedly in their ability to actually go about changing their systems of old-age provision. While economists usually look at efficiency aspects of different pension systems as well their macroeconomic implications, they, so far, have had less success in explaining when and why pension reforms may be politically feasible. The commonly used overlapping generations models that usually look at the age of the median voter as the decisive determinant are a rather primitive representation of political decision making in democratic systems. This project develops two simple models that aim at explaining decision making on pensions at the voting as well as the legislative level. The structure of electoral institutions shape political competition by office-seeking legislators, making it in certain systems much harder to enact reforms. At the parliamentary level, it is assumed that legislators care both about re-election and their partisan policy preferences. Moreover, their position is also influenced by the overall fiscal situation. The general implications of these models, especially the importance of the overall fiscal situation, are then empirically tested using time-series cross-section analyses of a set of OECD countries.