Social Security, Private Transfers and Voting Behaviour: the Italian case

This paper explores the political sustainability of the current Italian welfare state – in particular of the social security system. Previous studies – see D’Amato and Galasso (2002) for a politico-economic analysis based on a large calibrated model of the Italian economy – suggest that the demographic dynamic of population aging will lead to a larger size of the social security system, due to the increased political influence of the elderly voters. D’Amato and Galasso (2002) forecast the equilibrium social security tax rate to increase from 38% in 1992 to 49% in the year 2050. The Amato-Dini reforms of the 1990s – these studies suggest – have gone some way in limiting the rise in social security expenditure, however a further increase in the effective retirement age and more effective penalties to discourage early retirement are needed to keep the expenditure/GDP ratio under control. The demographic trends will imply that the median voter will be more and more in favour of a generous social security system and therefore not only the reforms of the 1990s may be inadequate, but there might be reduced willingness to apply additional retrenchment policies or even increasing pressure to revert to more generous rules. The current paper considers one additional channel which may affect the individual voting behavior over the welfare state, by focusing on the role of the family. A commonly observed featured of South-European economies is that children often receive support from their parents at ages – late twenties, early thirties – when European “average kids” are fully independent. Economic support from parents to children takes different forms including LQWHUYLYRV transfers, co-habiting in the parent’s house and provision of “public” goods within the household. In particular, we argue that Italian “pensioners” households transfer part of their benefit to non-emancipated kids, hence tilting the voting behaviour of younger generations in favour of social security. If this is the case, then it will become very hard for future governments to break these two forces: ageing of the median voter and a coalition formed between pensioners and dependent kids, making it more urgent to tackle the sustainability problem. Preliminary empirical results obtained by matching two samples – the Boeri, Borsch-Supan and Tabellini- BBT Survey (2000) on attitudes toward welfare policies and the bank of Italy SHIW Survey (2000) on economic and household information – show that the effects of private within-household transfers on voting in favour of pensions is positive and significant.