When the State Mirrors the Family: The Design of Pension Systems

Abstract

We study how the prevailing internal organization of the family affected the initial design of pension systems. Our theoretical framework predicts that, in society with weak family ties, pensions systems were introduced to act as a safety net, while in societies with strong ties they replicate the tight link between generations by providing generous benefits. Using a historical classification of family ties, we show that in societies dominated by (weak ties) absolute nuclear families (f.i. Anglo-Saxon countries), safety net pension systems emerged; and viceversa in societies dominated by strong families. These results are robust to controlling for alternative legal, religious, and political explanations. Evidence on individual data confirm these findings: US citizens whose ancestors came from countries featuring strong ties (communitarian or egalitarian nuclear) families prefer to rely on the government as a provider of old age security through generous retirement benefits.

Testing Todd: family types and development

“…Galasso and Profeta also consider the other two dimensions of Todd's family structures, cohabitation and endogamy, and find that they are not related to differences across countries in pension system design. Galasso and Profeta's (2018) finding that even the preferences of second-generation immigrants to the USA can be explained by the inheritance rules in their parents' home country is also relevant here. This is consistent with Todd's argument that family types are, like culture in general, highly persistent and have long-lasting consequences.…”

“…Bonoldi et al (2020) find that in South Tyrol (a region in Northern Italy that is influenced by both Italian and Germanic tradition and, thus, by competing inheritance rules), villages with an inheritance rule similar to primogeniture display higher voter turnout. Galasso and Profeta (2018) analyze the timing of the introduction of state-run pension systems and their generosity vis-à-vis pensioners. They theorize that citizens in countries with egalitarian inheritance rules prefer more generous pension systems, which is supported by the data.…”

The Family in Europe: Structure, Intergenerational Solidarity, and New Challenges to Family Health

“…The social and economic implications of the family system prevailing in a country are numerous. For example, they explain the earlier or later development of social policies depending on the role that socially was allocated to families (Reher, 1998), the type of welfare system chosen by the country (Alesina & Giuliano, 2010; Esping-Andersen, 1999), or even the type of pension system (Coleman, 1988, 1990; Galasso & Profeta, 2012).…”

Family Characteristics and Economic Development

“…Alesina and Giuliano (2011) establish an inverse relationship between family ties and political participation, as family and political institutions provide similar kinds of services. Galasso and Profeta (2010) demonstrate that family type influences the design of pension systems in different countries.…”