Measuring the individual-level determinants of preferences for redistribution: survey evidence from the 2008 argentine pension nationalization

Measuring the Individual-Level Determinants of Preferences for Redistribution: Survey Evidence from the 2008 Argentine Pension Nationalization

Matthew Carnes, Georgetown University Mec247@georgetown.edu Isabela Mares, Columbia University Im2195@columbia.edu

Abstract: This study employs an original, nationally representative survey of individuals in Argentina to understand the economic andpolitical factors that shape individual-level preferences for social insurance. In the past two decades, Latin American democracies have undertaken significant changes in their social welfare institutions, among the most focal of which have been shifts in pension policy. Political science accounts emphasize the explanatory role of partisanship and coalitions formed around pre-existing policies asthe principal variables leading to support or resistance to reforms. Economic explanations instead emphasize socioeconomic status, implicitly assuming that low-income individuals will prefer redistributive public contributory old-age insurance, while their higher-income peers will prefer private insurance programs. We develop a theory that nuances these views to explain how and when citizens willshift their preferences. We emphasize the role of dissatisfaction with poor private insurance fund performance in creating political opportunities for the introduction of sweeping reforms. Our survey capitalizes on the 2008 pension reform in Argentina to test these competing hypotheses regarding preferences for different kinds of old-age insurance. We find that socioeconomic status and personalexperience with earlier policies shape the role partisanship plays in forming preferences about changes in social insurance programs.

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Old-age insurance, one of the most foundational social policy programs, has undergone striking transformations and reversals in recent years in Latin America. Argentina presents an extreme example of this process. In 1994, the nation joined theprivatizing wave of the region by adopting a mixed private-public system; yet in 2008, it renationalized its pension funds. The first reform eventually enjoyed the support of all major stakeholders, including unionized workers and high-income individuals who preferred the non-redistributive nature of private pension savings. Yet, a decade later, those very same stakeholders overwhelminglyendorsed the second reform. What accounts for this change in preferences, which allowed the nationalizing reform to be passed with relative ease? And more generally, how do individuals evaluate differences in contributory insurance programs and private social policies? What factors determine their preferences for proposed changes? In this paper, we show that individual stakeholders in private insuranceare particularly sensitive to the performance of the funds to which they have contributed, and that they will support change when their returns decline or face greater uncertainty. Because their risk is not pooled, they bear all the costs of market losses individually; a shift to public social insurance promises to provide a pre-determined return, guaranteed by the state, thus better protectingthem in times of crisis. In the case of the Argentine pension nationalization, an increase in the volatility of returns to the private pension funds, following the financial crisis of 2007-2008, led individuals who had contributed to these funds to turn against them. Thus, they supported the proposal of Cristina Kirchner to nationalize the pension funds, making the state the underwriter of futurepension benefits. We support this claim with two kinds of data. First, we provide qualitative evidence that Kirchner herself, and other politicians, sought to capitalize on widespread dissatisfaction of private fund contributors when they introduced the reform measure.

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Even a broad swath of the opposition parties came to support the nationalization proposal, given the great popular...