A Matter of Trust: Understanding Worldwide Public Pension Conversions

This paper seeks to explain the key two stylized facts of fundamental reforms to social security systems worldwide: Why have so many countries reformed when traditional systems seem, at first glance, to have a higher probability of delivering a secure retirement income? Why have these reforms been larger in developing countries facing less severe demographic problems? We show that an OLG voter model can answer both questions. Larger reforms are motivated by a fundamental breakdown in intergenerational trust while smaller reforms are caused by a lack of trust in the ability of the government to save. Empirical analysis seems to support the model.