The Emergence of Redistributive Pensions in the Developing World

Abstract

In recent decades, redistributive pension schemes have seen a remarkable surge in developing countries, particularly in the form of so-called social or non-contributory pension schemes. We note that many of these redistributive schemes target the rural elderly and correlate with higher urban population density, and weaker social norms about parent-children relationships. We use this stylized evidence to motivate a political economy model for a Beveridgean social security system which shows trade-offs between four different segments in the population: the (poorer) rural old and young, and the (richer) urban old and young. We show under which conditions governments will install a pension system and increase its generosity as the share of the urban population rises, productivity differentials between urban and rural workers widen, or if the social norm erodes. We conclude that the role of the rural-urban divide in shaping redistribution merits more scholarly attention, as in many developing countries the gap between cities and the countryside widens.