The Politics of Pension Reform in a Comparative Perspective: A Cross-Regional Analysis of Argentina, Uruguay, Spain and Italy

Abstract

What factors explain pension reform decisions in countries with generous public pension systems and an ageing population? To answer this question I analyze four countries with some similar characteristics: (1) a well expanded and fragmented public pension system that follows the traditional Bismarckian structure of different funds for specific occupational categories; (2) a public pension system with high degrees of coverage and based on the pay-as-you-go (PAYG) principle in which current workers pay for current retirees; (3) increasing public pension spending levels that towards the 1990s made the public pension system unsustainable. The four selected countries differ along one significant dimension. Two of them are newly industrialized countries and in Latin America: Argentina and Uruguay. The other two countries are industrialized economies of the European Union: Italy and Spain.I hypothesize that while international and domestic factors matter in explaining pension reform, the former will play an indirect role by stressing the need to make the pension system more sustainable to put public finances in order. Thus, I contend that domestic economic and political factors will determine the reform outcome.I find support for my theory in the analysis of the four countries. International and supranational organizations played a role in supporting policymakers' reform efforts and highlighting the necessity to reduce pension liabilities in the long run to put public finances in order. However, these organizations did not determine the reform outcome. Instead, I find that domestic economic and political factors explain the final reform decision. On the economic side, the maturity of the pension system - represented by the magnitude of pension promises to future retirees - and the state of public finances, determined policymakers' first choice for reform; which ranged from proposals to change the parameters of the public pillar to that pillar's structural reform together with the introduction of a private pillar of individual accounts. Once this choice was made, the reform was negotiated with those with a special interest in the pension system: pensioners and labor. Thus, these actors' organizational strength and preferences explains the type of specific pension reform finally adopted in each country.