Economic crises,population aging and the electoral cycle: Explaining pension policy retrenchments in 19 OECD countries,1981–2004

Abstract

After decades of recurrent improvements in the generosity of public pension programs, since the early 1980s many pension reforms aimed to decelerate pension spending growth and strengthen the finances of these programs by retrenching the duration and/or value of pension entitlements. To understand this historical reversal in public pension provision, this article examines the forces affecting the enactment of contemporary pension retrenchments in 19 OECD countries. Based on a synthetic review of the pension policy literature, it identifies 90 pension retrenchments passed in these countries between 1981 and 2004. A growing literature on pension policy reform suggests that these policy events occur only when policy-makers can devise mechanisms to reduce their political blame. Building on this research, this article argues that the strategic consideration of economic and electoral cycles constitute two blame-avoidance strategies. First, by passing a pension retrenchment early in the electoral cycle, policy-makers can expect to face less electoral retaliation. Second, due to uncertainty in demographic projections, the demographic transition constitutes a weak discursive strategy to legitimate pension retrenchments. For this reason, population aging only affects the likelihood of reform by increasing the impact of economic crises. The article presents results from conditional frailty models for recurrent and sequential events that support this argument.