Is there a link between preferences for redistribution and pension spending? Markus Tepe * (Preliminary version - Do not quote) August 2007 Abstract This paper investigates the relationship between individual preferences for income redistribution and aggregate pension spending. It argues that differences in the level of pension expenditure reflect country-specific preferences for income redistribution. This argument is tested empirically by combining survey-data from the International Social Survey Program and country-level data on pension expenditure. Regression results indi- cate a strong link between preferences and spending. Countries with strong preferences for redistribution tend to experience high levels of public pensions and low levels of private pension expenditure. Keywords: Public pensions, Preferences, Income redistribution JEL Classification Numbers: D72, H55 * Address: DFG Pfadkolleg, Free University Berlin, Garystr.2l, 14195 Berlin, Germany, telephone: +493083857184, e-mail:[email protected]. This paper was concluded while the author was visiting Yale University. He wants to thank Frances Rosenbluth and the Leitner Program in International and Comparative Political Economy for generous hospitality. 1
Transcript
Is there a link between preferences forredistribution and pension spending?
Markus Tepe ∗
(Preliminary version - Do not quote)
August 2007
Abstract
This paper investigates the relationship between individual preferences for incomeredistribution and aggregate pension spending. It argues that differences in the level ofpension expenditure reflect country-specific preferences for income redistribution. Thisargument is tested empirically by combining survey-data from the International SocialSurvey Program and country-level data on pension expenditure. Regression results indi-cate a strong link between preferences and spending. Countries with strong preferencesfor redistribution tend to experience high levels of public pensions and low levels of privatepension expenditure.
Keywords: Public pensions, Preferences, Income redistribution
JEL Classification Numbers: D72, H55
∗Address: DFG Pfadkolleg, Free University Berlin, Garystr.2l, 14195 Berlin, Germany, telephone:+493083857184, e-mail:[email protected]. This paper was concluded while the authorwas visiting Yale University. He wants to thank Frances Rosenbluth and the Leitner Program inInternational and Comparative Political Economy for generous hospitality.
1
1 Motivation
Pension benefits are the single most important share of welfare expenditure in affluent
democracies. On average, mature welfare states in the OECD spent 6.9 percent of their
GDP on old age security in 2003. However, cross-country variation in spending levels
is rather large and persistent. The actual size of public pension programs ranges from
3.9 percent in Australia to 12.8 percent of GDP in Austria (see Table 1). The standard
explanation for this finding are differences in the institutional design of old age security.
Welfare states with a Beveridgean tradition tend to have a multi pillar system, in which
a tax financed public pillar guarantees minimum pensions. In Bismarckian welfare
states, old age security is organized as public insurance schemes, where benefits depend
on contributions made while working. Although the Bismarck-Beveridge-typology is a
useful concept to classify pension systems (Barr 1998, Bonoli 2003), it does not explain
why different societies choose different institutional pension designs. This paper argues
that differences in the design of old age security systems reflect citizens’ preferences for
income redistribution. In countries where income redistribution from rich to poor is
considered as a desirable political goal, it is more likely to observe systematically higher
levels of public pension expenditure.
Yet, there is no obvious reason why pensions involve intragenerational redistribution.
Simple welfare economics suggest, that countries adopt the most efficient method of
saving for retirement, thus they will adopt an unfunded social security system if its
rate of return, which is equal to the population growth rate plus the productivity
growth rate, exceeds the real interest rate (Aaron 1966). Browning (1975) shows that
democratic voting can yield inefficiently high levels of social security. Assuming that
voters are egoistic and do not care about their offspring, a majority of elderly voters
will enforce larger pensions at the expenses of younger generations. In contrast, this
study finds that the adoption and development of old age security systems is not only
driven by efficiency considerations or gerontocratic voting, but heavily determined by
2
country-specific preferences for income redistribution.
- Table 1 about here -
Investigating the link between preferences for redistribution and old age security is
important for at least two more reasons. Individual preferences not only help to under-
stand the persistence of different pension systems (Brooks & Manza 2007, Pierson 1994)
they are also crucial for designing feasible reforms. Prior public opinion research has
shown that better informed voters are more likely to support unpopular pension reforms
(Boeri, Borsch-Supan & Tabellini 2001). It has been argued that informing the public
about the costs of old age security is a precondition for successful reforms (Boeri &
Tabellini 2007). However, this line of reasoning involves a severe methodological issue.
How do stated preferences translate into real economic outcome? If there is no causal
relationship between stated preferences and political resource allocation, informing the
public would have no effect. This contribution tests the link between preferences and
spending empirically by combining individual-level survey data and aggregated spend-
ing figures for old age security. Secondly, with respect to the labor market, it has been
argued that workers are more willing to pay pension contributions if contributions are
perceived as a fair insurance premia (Borsch-Supan & Reil-Held 2001, p.506). If contri-
butions are perceived as pure taxes, welfare losses will occur as a result of lower labor
supply. Country-specific preferences for redistribution might mediate the distortionary
effect of pension contributions on labor supply. In countries where income redistribu-
tion is regarded as an important goal of old age security provision, contributors might
be more likely to except higher contribution rates without lowering labor supply.
This paper is organized as follows: The second section presents two alternative but
non-excluding theoretical accounts on the role of preferences for redistribution for old
age security. In the third section, I present the estimation strategy and data employed
in the empirical analysis. The fourth section summarizes and discusses the results. The
last section concludes.
3
2 Theory
Old age security systems in affluent democracies tend to pursue two main objectives;
insurance against the risk of longevity and redistribution of income from rich to poor.
While the former is self-explanatory, the latter is less clear. By definition, any un-
funded pension system redistributes between generations; from young contributors to
the current retired. This perspective assumes a pure actuarial relationship between
contributions paid during the working life and pension benefits. In fact, pension con-
tributions tend to be proportional to income, whereas benefits are often regressive
(Persson & Tabellini 2000). Borsch-Supan & Reil-Held (2001) break down German
pension benefits into a transfer and insurance component. Their estimates indicate
that intragenerational transfers amount to a gain of 1000 EUR annually for the low-
est income quintile and a transfer of about 600 EUR to those in the middle of the
earning distribution. Bearing in mind that Germany presents the prototype of a Bis-
marckian pension system, in which benefits are closely linked to contributions, this
is a considerable amount of income redistribution. The extend to which pension sys-
tems are committed to intragenerational redistribution varies largely among countries
(Immergut, Anderson & Schulze 2007). The politico-economic literature on old age
security provides two alternative accounts to explain intragenerational redistribution
as a feature of public pensions.
2.1 Self-interested voters
Pension models in the tradition of Browning (1975) stem from the median voter theory
(Downs 1957) and illustrate how re-election seeking politicians and self-interested voters
shape pension politics in Western democracies. Since there are various formalizations
of this idea (see Galasso & Profeta (2002) for a detailed review), I focus on the pension
voting model proposed by Persson & Tabellini (2000). They consider an overlapping-
4
generation economy in which voter coalitions on pension politics form along two di-
mensions; age and income. The elderly are assumed to vote for a revenue maximizing
tax-rate, as they internalize only benefits and not the costs of higher taxes. However,
not only the elderly themselves might vote for larger pensions. Old age workers may
anticipate the concerns of the elderly. Elderly contributors who sense “that could be
me soon” might also favor larger pensions (Lindert 1996). The young and middle-aged
individuals base their preferences on both income and age. Increasing the contribution
rate entails benefits when old and costs in the first two periods of life due to higher
taxes. The benefit of a higher contribution rate is the same for all young voters, but
the costs are higher for the richer among the young. Therefore, poorer individuals pre-
fer larger public pensions, as they benefit more from intragenerational redistribution.
Larger income inequality makes the decisive voter more willing to exploit the public
system for intragenerational redistribution (Meltzer & Richard 1981). The Persson &
Tabellini (2000) model is leading to the following hypothesis: (H1) Elderly individuals
are more likely to favor more generous government spending for old age security. There-
fore, societies with a larger share of elderly experience higher levels of public pension
expenditure. (H2) Wealthy individuals are less likely to favor government spending for
old age security as they benefit less from intragenerational redistribution. Therefore,
societies with a larger share of wealthy individuals experience lower levels of public
pension expenditure.
2.2 Social beliefs
Standard pension voting models assume that pecuniary self-interest motivates support
for public pensions. People vote for larger public schemes because they expect to
gain a personal benefit. This approach overlooks the the role of cultural norms and
social beliefs. Corneo & Gruner (2002) provide empirical evidence that pecuniary self-
interest is only one dimension of preference formation. Individual attitudes toward
5
political redistribution also reflect their personal system of social beliefs. In this case,
individuals do not support a redistributive pension program because it maximizes their
private benefit, they support a redistributive scheme because it conforms their ideal
of social policy for society as a whole (Corneo & Gruner 2002, p.84). Social values
and pecuniary self-interest do not necessarily exclude each other; individuals may even
try to balance conflicting motivations. Arrow (1963) already claims, that preferences
toward redistribution can be integrated into a social welfare function that expresses
preferences for resource allocation to all individuals in a society (Corneo & Gruner 2002,
p.86). Social beliefs assume no “a priori” link between individual age or income and the
support for public pensions. It hypothesizes that (H3) pro-redistribution individuals are
more likely to favor government spending for old age security. Therefore, societies with
high preferences for income redistribution will adopt generous public pension schemes.
3 Literature review and contribution
Although the redistributiveness of public pension schemes has been subject to theo-
retical and empirical investigations, none of these studies investigate the link between
preferences for redistribution and pension spending. Conde-Ruiz & Profeta (2003) de-
velop a voting model of intragenerational redistribution with respect to Bismarckian
and Beveridean pension systems. They conclude that in a society with large income
inequality, the voting majority of high and low-income agents would support a small
Beveridgean system with a large private pension pillar; while the opposite would arise in
a society with low inequality. Empirical studies indicate that the income redistribution
function of public pensions schemes is a key mechanism for maintaining an adequate
standard of living for the elderly. Heinrich (2000) employs data from the European
Community Household Panel to investigate the relative income position of elderly per-
sons in the EU. He finds evidence that the income distribution among the old is less
6
unequal than the income distribution among the working, which indicates the redistri-
bution effect of public pension benefits. Once a welfare program is in place it tends to
create its own constituencies. Boeri et al. (2001) survey on citizens’ opinion on welfare
reform policies shows that the majority of respondents oppose cuts in welfare expen-
diture. Yet, instead of further increases, most citizens favor reforms that stabilize but
would not shrink the welfare state. Moreover, they find that workers systematically
underestimate the costs of public pensions although they are aware of the system’s
unsustainability.
Alesina & Glaeser (2004) investigate the relationship between preferences for redis-
tribution and welfare spending. They find a positive and robust correlation between
the share of respondents who believe that luck determines income and the level of re-
distribution across 19 countries. Regression results indicate that a 10 percent increase
in the share of the population believing that luck determines income, is associated with
a 3.5 percent increase in the share of GDP spent by the government on redistribution.
Alesina & Angeletos (2003) present additional empirical support for this finding. Public
opinion on social values provides a powerful source of legitimacy for welfare policies.
Brooks & Manza (2007) argue that these preferences help to explain why welfare states
persist even in times of fiscal austerity. They find a positive correlation between total
social expenditure and country-specific preferences for redistribution.
The literature review reveals that there has been no systematic attempt to assess the
impact of mass opinion on the output of old age security programs. This paper seeks to
contribute to the existing literature by providing empirical evidence to the question if
there is a link between individual preferences for redistribution and aggregate pension
spending. Moreover, it differs methodically from prior empirical research on pension
policies by combining individual-level survey data with macro-level spending figures.
7
4 Method and data
The empirical analysis proceeds in two steps. First, in order to prove the validity of
the item for redistribution preferences, the hypotheses are tested on individual-level
data. Second, a panel dataset combines country-level preferences for redistribution and
aggregate figures for public and private pension expenditure. This dataset is then used
to investigate the link between preferences for redistribution and aggregate spending.
4.1 Individual-level
Individual preferences for old age security are captured by two alternative variables;
public responsibility for the elderly and public spending on old age security. The
individual-level data comes from the ISSP (1996) Module “Role of the Government
III”. Unlike the Eurobarometer and the European Social Survey, the ISSP includes non
European Union countries such as Australia, United States, New Zealand, Canada,
Japan and Switzerland. Moreover, compared of the World Value Survey, the ISSP asks
much more detailed questions on social policy preferences (Brooks & Manza 2007, p.35).
Survey question V39 asks whether participants agree with the following statement “On
the whole, do you think it should be or should not be the government’s responsibility
to: Provide a decent standard of living for the old.”. Respondents were able to choose
between “Definitely should be (4), Probably should be (3), Probably should not be (2)
and Definitely should not be (1)”. A second item (V30) asks how much the government
should spend on old age security. Respondents could choose between “Spend much
more (5), Spend more (4), Spend the same as now (3), Spend less (2) and Spend much
less (1)”.
The three main independent variables are age, income and preference for income
redistribution. The respondents age and his income are standard questions in any
public opinion survey. Age is measured as a continuous variable and as dummy coded
8
age groups for young, middle-aged and old workers (15 to 25, 26 to 40, 41 to 64 and 64
and older). In order to archive international comparable values for the income variable,
the following transformation is adopted: ln(yi − y), where yi is the respondent’s family
income and y is the average family income in the respondent’s country. Moreover, the
income measure is split into quartiles, where high income denotes for those 20 percent
belonging to the highest income group and low income denotes to those 20 percent
belonging to the lowest income group. Preferences for redistribution are captured by
question V16, which asks: “What is your opinion of the following statement: It is the
responsibility of the government to reduce the differences in income between people with
high incomes and those with low incomes.” The answer categories were “Agree strongly
(5), Agree (4), Neither agree nor disagree (3), Disagree (2) and Disagree strongly (1)”.
In order to control for alternative factors that might influence preferences for old age
security, the analysis includes gender, marital status, education years and occupational
status. In each case “Can’t choose, don’t know” and “No answer, refused” are coded
as missing. The statistical analysis employs a series of ordered probit models. Ordered
probit estimators have been shown to provide an appropriate statistical framework for
the analysis of ordinal survey responses (Daykin & Moffatt 2002). Each model includes
a full set of country dummies. Table 2 in the appendix provides detailed information
about the definition and source of the variables employed in the probit regression.
4.2 Country-level
In order to measure preferences for redistribution across countries and over time, I
collect data from nine ISSP surveys conducted between 1985 and 2000. Table 5 in
the appendix shows the number of observations per country and the module in which
the question on preferences for income redistribution was asked. Standardization of
individual preferences for redistribution has been archived by applying the following
transformation: yc,j − yj, where yc is a country’s mean response in year j and yj is
9
the mean response in the overall sample in year j. Figure 1 presents average country-
specific preference for income redistribution for the whole observation period. Apart
from the Untied Kingdom all countries in which the deviation from the mean response
is negative, belong to the group of Beveridge welfare states. Respondents in these
countries are less likely to favor political income redistribution. This data is merged
into one dataset together with measures for the output of old age security systems.
- Figure 1 about here -
The cross-country analysis employs three alternative dependent variables to mea-
sure pension spending; pension expenditure per GDP, pension replacement rates and
the private public ratio of pension provision. Public pension expenditure in cash per
GDP proxies the absolute size of the pension system. Standard pension replacement
rates capture the generosity of public pensions. They are defined as the ratio of net
public pension paid to a person earning the average productive worker wage in each
year of their working career. Finally, the private public ratio concerns the division
between private and public responsibility for old age security. A higher private pub-
lic ratio indicates a larger share of funded pension provision. The data on pension
expenditure is taken from the OECD (2007c) Social Expenditure Database, data for
pension replacement rates are taken from Scruggs (2005) Welfare State Entitlement
Dataset and the data on funded pensions is taken from the OECD (2005) Institutional
Investors Database and the OECD (2007a) Global Pension Statistics.
The independent variable of main interest measures country-specific preference for
redistribution. Testing the link between preferences for redistribution and aggregate
pension spending, it is assumed that this variable has a positive effect on public pension
expenditure and pension replacement rates; its effect on the private public ratio is
predicted to be the opposite. With respect to the pension voting model the analysis
also includes aggregated measures for age and income. On the country level, the aging
effect is captured by the old age ratio. The old age ratio is defined as the share of the
10
elderly (65+) as a percentage of the total population. Data for the old age ratio is
taken from the OECD (2007b) Labor Force Statistic. The income effect is captured via
GDP per worker and the Gini coefficient. Data for the Gini coefficient is taken from
the the United Nations (2005) World Income Inequality Database. Since cross sectional
measures of income inequality tend to be highly imperfect, the sample only includes
quality 1 rated data. For the regression analysis the number of observation has been
increased by linear interpolation. Furthermore, the analysis includes the inflation rate.
Since the ISSP does not provide annual data the statistical model has to focus on the
long term effect of preferences for redistribution on pension spending. It is estimated
with OLS and includes a full set of year dummies. Table 6 in the appendix presents
the definition and source of variables included in the panel regression.
5 Empirical results
5.1 Individual preferences for old age security
Estimation results for determinates of individual preferences for old age security are
presented in Table 4. The estimated coefficient for age is positive and statistically sig-
nificant, which indicates that older individuals are more likely to favor government’s
responsibility for old age security and higher government spending for the elderly. Em-
ploying dummy variables for young workers, old workers and those above retirement
age shows, that old workers tend to have the strongest preference for government’s re-
sponsibility and public spending for the elderly. This finding is consistent with Lindert
(1996) who finds that societies with more middle-aged adults tend to spend more, not
less, on social security. Estimation results for the income variables confirm that wealthy
individuals are less likely to prefer government’s responsibility for old age security nor
do they prefer more public spending for the elderly. Employing dummy variables for
the highest and lowest income quartile supports this finding; the income effect is even
11
stronger. The baseline results confirm prior findings by Boeri et al. (2001) on individual
preferences for old age security.
- Table 4 about here -
The coefficient for income redistribution is statistically significant and relatively
large in his magnitude. Respondents preferring political income distribution are more
likely to favor government’s responsibility for old age security and a higher amount
of government spending for the elderly. In order to discriminate the impact of so-
cial values against alternative explanations, Model 3 and 6 include additional control
variables. Scheve & Stasavage (2006) argue that religion and welfare spending are sub-
stitute mechanisms to insure individuals against adverse life risks. They find evidence
that religious individuals tend to prefer lower levels of social insurance than secular
individuals. Religious attendance measures how often the respondent attends religious
services independent from his religion. Moreover, political party preference might also
interfere with preferences for income redistribution. However, even after controlling for
these effects the coefficient for redistribution remains statistically significant and almost
unchanged in his magnitude. This leads to the conclusion that individual preferences
for redistribution are, to a certain extent, motivated by non-pecuniary incentives.
5.2 Preferences and aggregate pension spending
Figure 2 shows the relationship between preferences for redistribution and the three de-
pendent variables. The graphs indicate a positive relationship between public pension
expenditure and preferences for income redistribution and a positive relationship be-
tween pension replacement rates and preferences for income redistribution. In contrast,
preferences for redistribution and the private public ratio of pension provision seem to
be negatively correlated.
- Figure 2 about here -
12
Model 1 in Table 8, 9 and 10 report correlation coefficients for pension spending
and redistribution preferences. The figures indicate a positive and highly significant
correlation between public pension expenditure and redistribution preferences. Using
standard pension replacement rates as the dependent variable does not alter this find-
ing. Moreover, preferences for redistribution are negatively correlated with the private
public mix. The overall pattern is consistent with (H3) and shows that preferences for
redistribution have a large impact on the R2. Model 2 in Table 8, 9 and 10 include
core macroeconomic variables derived from the Persson & Tabellini (2000) model. The
share of elderly has a positive effect on public pension spending and a negative effect on
the private public ratio. Thus, a larger share of elderly is correlated with more public
and less private spending. Estimation coefficients for the inflation rate show the same
pattern. GDP per worker has a negative impact on public pension expenditure and pub-
lic pension generosity, although this finding is not robust with respect to the private
public ratio. In terms of substantive effects, the impact of redistribution is remark-
able. A three point increase in preferences for redistribution increases public pension
expenditure per GDP by 0.1 percent. The overall finding suggests that country-specific
preferences for redistribution explain a considerable share of cross-country variation in
pension spending.
- Table 8, 9 and 10 about here -
In order to test the robustness of this finding Model 3 and 4 in Table 8, 9 and 10
include the Gini coefficient and government ideology. Estimates for the Gini coeffi-
cient indicate that larger income inequality is negatively correlated with public pension
generosity and positively correlated with a larger share of funded pensions. Partisan
politics play a minor role in explaining cross-country variation in pension spending.
Nevertheless, none of these model specifications alters the finding for redistributive
preferences. In sum, the pane; regression indicates that cross-country differences in
13
preferences for political income redistribution help to explain the level of public and
private pension expenditure.
6 Concluding remarks
This study finds a strong link between individual preferences for income redistribution
and aggregate pension expenditure. Combining survey-data and aggregate pension
spending reveals that countries with strong preferences for redistribution tend to ex-
perience high levels of public pension expenditure and low levels of funded pensions.
Although economic growth and demographic change continue to shape old age security
systems, country-specific preferences for income redistribution play an important role
in explaining differences in pension spending. However, there are also some restriction
that have to be mentioned. Preferences for redistribution might also be influenced by
the current modus of pension provision, indicating that preferences for redistribution
are (partly) the result of pension spending (Brooks & Manza 2007, p.46). In order to
interpret correlation coefficients as the causal effect of preferences on pension spending,
one would need a good instrument for preferences for redistribution. Unfortunately,
such an instrument has not been available.
On a more fundamental level, this study indicates that contemporary pension models
underestimate the role of cultural norms and social beliefs for the design and reform
of pension programs. However, the results of this study are good news for public
opinion research. Survey answers are not merely statements drawn from the top of the
respondents head without any systematic component (Zaller 1992). The aggregation
of individual survey responses indicates that differences in stated preferences translate
into different economic outcomes. Thus, it is legitimate to conclude that informing the
public about the costs of old age security will increase the likelihood of real reforms.
14
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17
Table 2: Probit regression variables
Variable Definition SourceGov. resp. Government’s responsibility for old
age securityV39
Gov. spend. Government spending for old age se-curity
V30
Age Respondent’s age in years V201Age 15 to 25 Age group (dummy coded)Age 26 to 40 Age group (dummy coded)Age 41 to 64 Age group (dummy coded)Age 65 and older Age group (dummy coded)Income Family income (log-transformation) V218High income Highest 20 % (dummy coded)Low income Lowest 20 % (dummy coded)Redistribution Preference for income redistribution V16Religious Attendance to religious service V220Left party Preference for communists, social-
ists or social democrats (dummycoded)
V223
Source: ISSP Role of Government III (1996).
Figure 1: Country-specific preferences for redistribution
−1
−.5
0.5
Pre
fere
nce
for
redi
strib
utio
n
USADNKAUSCANNLDCHE
JPN
NOR
GBR
SWE
GER
FRA
AUT
ITA
ESP
FIN
Note: Preferences for redistribution are defined as devia-tions from the ISSP sample mean response. In each instancethe sample includes only OECD countries.
Note: Probit regression. Robust standard errors in parenthesis. ***=1 percent, **=5percent and *=10 percent significance level. Country effects included but not reported(Australia, Germany (West), Germany (East), United Kingdom, United States, Hungary,Italy, Norway, Sweden, New Zealand, Canada, Japan, Spain, France, Switzerland).
20
Table 5: Government’s responsibility to reduce income differences
Country ISSP Module YearsAustralia Role of Government, Social Inequality, Role
of Government II, Religion, Social InequalityII, Role of Government III, Religion II, SocialInequality III
1985, 1987, 1990, 1991,1992, 1996, 1998, 1999
Austria Role of Government, Social Inequality, Reli-gion, Social Inequality II, Religion II, SocialInequality III, Environment II
1985, 1987, 1991, 1992,1998, 1999, 2000
Canada Social Inequality II, Role of Government III,Religion II, Social Inequality III, EnvironmentII
1992, 1996, 1998, 1999,2000
Denmark Religion II, Social Inequality III, EnvironmentII
1998, 1999, 2000
Finland Environment II 2000France Role of Government III, Religion II, Social In-
equality III1996, 1998, 1999
Germany Role of Government, Social Inequality, Roleof Government II, Religion, Social InequalityII, Role of Government III, Religion II, SocialInequality III, Environment II
Italy Role of Government, Social Inequality, Role ofGovernment II, Religion, Social Inequality II,Role of Government III, Religion II
1985, 1987, 1990, 1991,1992, 1996, 1998
Japan Role of Government III, Religion II, Social In-equality III, Environment II
1996, 1998, 1999, 2000
Netherlands Social Inequality, Religion, Religion II, Envi-ronment II
1987, 1991, 1998, 2000
Norway Role of Government II, Religion, Social In-equality II, Role of Government III, ReligionII, Social Inequality III, Environment II
1990, 1991, 1992, 1996,1998, 1999, 2000
Spain Role of Government III, Religion II, Social In-equality III, Environment II
1996, 1998, 1999, 2000
Sweden Social Inequality II, Role of Government III,Religion II, Social Inequality III, EnvironmentII
1992, 1996, 1998, 1999,2000
Switzerland Social Inequality, Role of Government III, Re-ligion II, Environment II
1987, 1996, 1998, 2000
United Kingdom Role of Government, Social Inequality, Roleof Government II, Religion, Social InequalityII, Role of Government III, Religion II, SocialInequality III, Environment II
United States Role of Government, Social Inequality, Roleof Government II, Religion, Social InequalityII, Role of Government III, Religion II, SocialInequality III, Environment II
Codebook: Role of Government (V30), Role of Government II (V24), Roleof Government III (V16), Social Inequality (V49), Social Inequality II (V57),Social Inequality III (V57), Religion (V6), Religion II (V6), Environment II(V5)
21
Figure 2: Relationship between preferences for redistribution and pension spending
AUS
AUT
CAN
CHE
DNK
ESP
FIN
FRA
GBR
GERITA
JPNNLD
NOR
NZL
SWE
USA
.02
.04
.06
.08
.1P
ublic
pen
sion
exp
endi
ture
(pe
r G
DP
)
−1 −.5 0 .5Preference for redistribution
AUS
AUT
CAN
CHE
DNK
FIN
FRA
GBR
GERITA
JPNNLD
NOR
NZL
SWE
USA
.3.4
.5.6
.7.8
Sta
ndar
d pe
nsio
n re
plac
emen
t rat
e
−1 −.5 0 .5Preference for redistribution
AUS
AUT
CAN
CHE
DNK
ESPFIN
FRA
GBR
GER ITA
JPN
NLD
NOR
NZL
SWE
USA
05
1015
Priv
ate
publ
ic r
atio
−1 −.5 0 .5Preference for redistribution
Note: Reported preferences are averaged for 1985 to 2000.Spending figures are averaged for 1980 to 2003.
22
Table 6: Panel regression variables
Variable Definition SourcePension exp.GDP
Public pension expenditure(cash) per GDP
OECD Social Expendi-ture Database
Pension repl. rate Standard public pension re-placement rate
Scruggs (2005) Wel-fare State EntitlementDataset
Private public ra-tio
Pension fund assets dividedby public pension expenditure
OECD Social Ex-penditure Database,OECD InstitutionalInvestors Database,OECD Global PensionStatistics
Redistribution Reported preference for in-come redistribution
International SocialSurvey Program (vari-ous modules)
Inflation Inflation rate (annual %) World Development In-dicators
Old age ratio Share of the elderly (65+) asa percentage of the total pop-ulation
OECD Labor ForceStatistics
GDP per worker GDP per working age popula-tion (aged 15 to 64) log
World Development In-dicators, OECD LaborForce Statistics
Gini coefficent Gini coefficient in percent-age points as calculated byWIDER. Only quality = 1rated data employed.
World Income Inequal-ity Database (2005)
Left 1 if the executive belongs to aparty of the left and 0 if rightwing or centrist
World Bank (2005)Database of PoliticalInstitutions
Right 1 if the executive belongs to aparty of the right and 0 if leftwing or centrist
World Bank (2005)Database of PoliticalInstitutions
23
Table 7: Panel regression summary statistics
Variable Obs Mean Std. Dev. Min MaxPension exp. GDP 432 0.06 0.02 0.03 0.12Pension repl. rate 383 0.59 0.15 0.28 0.94Private public ratio 276 4.86 4.98 0.08 19.91Redistribution 95 -0.09 0.40 -1.03 0.68Old age ratio 432 0.14 0.02 0.09 0.19GDP per worker 432 0.43 1.26 -1.93 2.56Inflation 420 0.04 0.04 -0.01 0.21Gini 429 29.58 4.42 22.42 37.97Left 432 0.42 0.49 0 1Right 432 0.46 0.50 0 1
Table 8: Determinates of public pension expenditure
