Marital Status and Derived Pension Rights: A Political Economy Model of Public Pensions with Borrowing Constraints

Abstract

This paper develops an overlapping-generations models featuring four types of households: single female, single male, one-breadwinner couple, and two-breadwinner couple. The paper considers majority voting over public pension in the presence of derived pension rights for one-breadwinner couples. In an economy with a low intertemporal elasticity of substitution, borrowing-constrained one-breadwinner couples may prefer a lower tax rate than do other types of households, although the former attain a higher benefit-to-cost ratio of public pension than do others. Changes in the gender wage gap, the level of derived pension rights, and the fraction of two-breadwinner couples produce an inverse U-shaped relationship between the relevant variable and the tax rate.