AGENTA organized its final conference inviting also papers unrelated to the project. Among them, our study of the political economy of pension reform reversals was presented. The literature on the effects of privatization of social security mostly finds that such a reform is welfare improving in Kaldor-Hicks sense: it benefits future generations while cohorts working during transition usually incur a welfare loss. It means that as time passes the fraction of living agents benefiting from the reform is increasing. Hence an intuition that support for such a reform increases in time and at some point (partially) funded pension systems should become politically stable. In our paper we show that this intuition is not actually true. Actually, it is always politically favored to steal the money of the future generations to reduce taxation or public debt. In fact, the privatization of the pension system never becomes politically stable: even though the initial old cohorts have passed, the contemporaneously living cohorts always benefit immediately from capturing the resources accumulated in the funded pillar, while shifting the costs of this appropriation to the future. Hence, there is stable political support for “unprivatizing” pension systems, even many decades after the privatization. Our findings should rather be interpreted as evidence that implementing a state-run multi-pillar pension system may suffer from the credibility shortage. The risk of “unprivatizing” is permanent and thus should be taken into account when designing pension system reforms. Notably, if pensions and/or contributions are shifted away from the capital pillar, such unstable reform generates only welfare costs, because the welfare gains do not materialize.

Given these negative results, one may wonder about the general nature of the funded pillars. In advanced economies, these pillars are usually an element of a tripartite agreement between the employer, the pension fund and the worker. Consequently, property rights are set at par with other financial instruments. In emerging economies the agreement typically involves also government, even if only in the role of entity collecting and transferring contributions from workers to pension funds. The presence of the government in this contractual agreement makes funded pillars an element of social contract rather than a purely financial instrument. Given this discrepancy, an interesting avenue of further research is analyzing the determinants of changes in the funded pillars also in advanced economies, with special emphasis to alternative policies facilitating the capturing of the assets accumulated in funded pillars by the living cohorts. These can comprise exceptional capital taxes or capital income gains taxes as well as other regulations addressing the ability to accumulate wealth by the pension funds. This could help to evaluate if our results may be generalized to private social security without government engagement.