A BEJM Topics article.

Abstract

Financial markets and pay-as-you-go social security are two alternative ways to provide for retirement. The size of social security programs could therefore be partly determined by the level of financial frictions. I explore this possibility by using legal origin as a proxy for financial frictions that may hold back financial development. The empirical analysis yields two main results. First, legal origin-driven differences in financial frictions are an important determinant of social security; in particular, common law countries exhibit significantly smaller public pension programs. Second, two-stage estimates suggest that legal origin impacts on social security through financial market development.

Submitted: November 29, 2007 · Accepted: February 26, 2009 · Published: March 27, 2009

Recommended Citation

Pinotti, Paolo (2009) "Financial Development and Pay-As-You-Go Social Security," The B.E. Journal of Macroeconomics: Vol. 9 : Iss. 1 (Topics), Article 11.
DOI: 10.2202/1935-1690.1674
Available at: http://www.bepress.com/bejm/vol9/iss1/art11