The political origin of pension funding

This paper argues that historical political preferences on the role of capital markets
shaped national choices on pension reliance on private funding.
Under democratic voting, a majority will support investor protection and a privately
funded pension system when the middle class has significant financial participation,
while high wealth concentration favors a state-funded retirement system and weak
investor rights. We present evidence that pension funding is well explained by wealth
distribution shocks in the first half of the XX century. The effect is very significant: a
large shock reduces the stock of private retirement assets by 58% of GDP. The results
stand after controlling for complementary explanations, such as legal origin, past and
current demographics, religion, electoral voting rules, national experiences with financial
market performance, or other major financial shocks that were not specifically
redistributive.