Abstract:

We seek to explain the creation of national Old-Age Insurance (OAI) and Health Insurance schemes, and their subsequent growth. We estimate a hazard model of the ‘risk’ of a country’s creating social insurance. Many theories about the adoption of social insurance exist, but none fits the data well. We find weak evidence that the risk of adopting a system declines in a country’s wealth and in the ethnic heterogeneity of its population. Catholic countries are more likely to create earnings-related OAI systems. We conclude that social insurance can be politically expedient for many different reasons. The growth of OAI spending since 1960, controlling for population ageing, has varied considerably across countries. We find it has been faster in countries emerging from dictatorship, and slower in English-speaking countries. Thus the pension spending is following rather different trajectories across countries.