The Political (In)Stability of Funded Social Security

We analyze the political stability of funded social security. Using a stylized theoretical framework we study mechanisms behind governments capturing security assets in order to lower current taxes. The results and driving carry over fully-fledged carefully calibrated overlapping generations model with an aging population. Funding is efficient Kaldor-Hicks sense. demonstrate that, even though can rationalize actual introduction two-pillar defined-contribution scheme funding through majority vote, new vote curtail pillar asset capture or permanent diversion contributions pay-as-you-go always receives support. For those alive thus allowed temporary reduction taxes outweighs retirement benefits. This result robust substantial intra-cohort heterogeneity other extensions, only overturned sufficient degree altruism. Our analysis rationalizes experience Central Eastern European countries, who rolled back their pension pillars soon after setting them up.