Mr. Reviglio, a graduate of the University of Turin, was an economist in the Fund’s Department of Fiscal Affairs when this paper was prepared. Since then, he has returned to Italy to join the faculty of economics of Urbino University, Ancona. He is the author of La Teoria delta Curva di Domanda e gli Effetti delle Imposte (Milan, 1965) and has published several articles in Italian economic journals.
European Economic Community, Etude sur la physionomie actuelle de la sécurité sociale dans les pays de la C.E.E., and Financement de la sécurité sociale dans les pays de la C.E.E., Etudes, Série Polítique Sociale, No. 3 and No. 5 (Brussels, 1962); European Economic Community, Exposé sur l’évolution de la situation sociale dans la communaute en 1963 (Brussels, 1964). See also Sozial-statistik-Statistiques Sociales (Luxembourg), No. 3, 1961; No. 4, 1962; No. 1, 1963; and No. 2, 1964.
This definition is broader than that accepted in the United States, where for historical reasons, the field of operation of social security has been limited to the long-term risks (old age, invalidity, and death); and it is narrower than the concept formulated by the International Labor Office (ILO) in that it excludes public expenditures for health which supplement social insurance programs covering only a part of the population, public assistance, war victims and military disablement pensions, and other programs financed directly by the public budget and not by social security taxes.
For a summary of social security programs in all countries, see U.S. Department of Health, Education, and Welfare, Social Security Administration, Social Security Programs Throughout the World, 1964 (Washington, 1964). Other sources include supplemental reports of the U.S. Department of Health, Education, and Welfare; International Labour Review; Bulletin of the International Social Security Association; and Daniel S. Gerig, “Social Security in the New African Countries,” Social Security Bulletin, Vol. 29, January 1966, pp. 29-41.
Argentina, Brazil, the Republic of China, Congo (Brazzaville), Costa Rica, the Dominican Republic, Ecuador, Israel, Mali, Mexico, Nicaragua, Panama, Paraguay, the Philippines, and Upper Volta.
This inclusion does not affect the amount of savings mobilization shown in this paper, because expenditures for health programs are offset by payments from the general budget, leaving no balance.
Notable exceptions in developing countries are the national health programs of Malaysia and Ceylon, and the programs providing for curative medical care in Ghana and Tanzania. (Throughout this paper, data given for Malaysia cover only the States of Malaya.)
Iran, Iraq, Morocco, Peru, and Syria; Iraq had a provident fund beginning in 1956, but in 1965 the fund was transformed to a pension program.
Including (1) several French-speaking African countries (Cameroon, Chad, Niger, Senegal, and Togo) and Cambodia, in which the social security system is limited to work injury, maternity benefits, family allowances, and special programs for public employees; (2) Afghanistan, Haiti, Jordan, Kenya, Korea, Saudi Arabia, Sierra Leone, Somalia, the Sudan, Thailand, Uganda, and Zambia, in which the social security system is limited to work-injury programs and special systems for public employees; and (3) Ethiopia, in which only a public employees’ program is in force.
Including the Central African Republic, Gabon, Guinea, Ivory Coast, Burundi, the Democratic Republic of Congo, Rwanda, and Tanzania.
Mauritania introduced a pension program for employees in the private sector in 1965.
Ghana introduced a provident fund in 1965. The expected surplus (“£G 24 million a year) would place Ghana in the upper part of the table, with a rate of mobilization of around 8 per cent of GDI.
Bank Negara Tanah Melayu [Central Bank of Malaya], Annual Report and Statement of Accounts, 1964.
This criticism cannot be raised against the government transfers to a national health program when the coverage of the program is general and not restricted to certain classes of citizens.
In Tables 1 and 2, Brazil is shown with a considérable amount of resources mobilization. This can be explained by the détérioration of Brazil’s financial situation after 1961, leaving a social security deficit both in 1962 and in 1963.
For the pertinent experience gained by several countries, see Alvin M. David, “Problems of Retirement Age and Related Conditions for the Receipt of Old-Age Benefits,” Bulletin of the International Social Security Association, Year XVII, February-April 1965 (Report IX adopted by the Association at its XVth General Assembly, Washington, 1964); and T. Higuchi, “Old-Age Pensions and Retirement,” International Labour Review (Geneva), Vol. 90 (1964), pp. 333-51.
The term “savings mobilization” is intended to mean any increase in the total amount of domestic savings available for physical capital formation, or for improving the balance of payments (Bent Hansen, “Tax Policy and Mobilization of Savings,” in Government Finance and Economic Development, Alan T. Peacock and Gerald Hauser, eds., Organization for Economic Cooperation and Development, papers and proceedings of the Third Study Conference on problems of economic development, Athens, 1963 (Paris, 1965), pp. 143-55, especially p. 143).
Phillip Cagan, The Effect of Pension Plans on Aggregate Saving: Evidence from a Sample Survey, National Bureau of Economic Research, Occasional Paper 95 (New York, 1965). The conclusion that participation in pension plans does not inhibit or retard saving was also reached by George Katona, Private Pensions and Individual Saving, Survey Research Center, Institute for Social Research, University of Michigan, Monograph No. 40 (Ann Arbor, Michigan, 1965), p. 75. The conclusion that pension programs stimulate people to save was not ruled out in the previous literature. See George Garvy, “The Effect of Private Pension Plans on Personal Savings,” The Review of Economics and Statistics, Vol. XXXII (1950), pp. 223-26; and George Katona, “Attitudes Toward Savings and Borrowing,” in Consumer Instalment Credit, Part II, Vol. 1, Conference on Regulation, National Bureau of Research report to [U.S.] Board of Governors of the Federal Reserve System (Washington, 1957), pp. 450-69, and also his The Powerful Consumer: Psychological Studies of the American Economy (New York, Toronto, and London, 1960), pp. 98-99. Particularly for developing countries, see E.M. Bernstein, “Financing Economic Growth in Underdeveloped Economies,” in Savings in the Modern Economy, Walter W. Heller and others (Minneapolis, Minnesota, 1953), p. 299; and Hansen, op. cit.
Because of the large margin of error, these data should be accepted with caution. Besides the evidence shown in Table 7, see Simon Kuznets, “Quantitative Aspects of the Economic Growth of Nations: V. Capital Formation Proportions, International Comparisons for Recent Years,” Economic Development and Cultural Change (Chicago), Vol. VIII, Part II, July 1960, pp. 72 ff.; and William I. Abraham, “Saving Patterns in Latin America,” loc. cit., Vol. XII (1964), pp. 368-91, especially pp. 382 ff.
For a similar conclusion for ECAFE countries, see “Measures for Mobilizing Domestic Saving for Productive Investment,” Economic Bulletin for Asia and the Far East, United Nations, Vol. XIII, December 1962, pp. 1-26. Data on volume and pattern of saving of the household sector in India during 1950/51-1962/63 indicate that the growing contribution of provident funds to saving mobilization did not prevent an increase of other savings of the household sector. While saving through provident funds increased from 0.4 per cent of national income during this period to 1.0 per cent during 1959/60-1962/63, the ratio of household sector savings to national income increased from 3.4 per cent to 5.6 per cent, over the same time (D.R. Khatkhate and K.L. Deshpande, “Estimates of Savings and Investment in the Indian Economy, 1950-51 to 1962-63,” Reserve Bank of India Bulletin, Vol. XIX (1965), pp. 314-33, Table XIII).
F. Forte, Lezioni di Economia Finanziaria, Vol. I, Teoria Generate, Part II (Turin, 1967).
The incidence of payroll taxes on the employer, however, is not held likely in the prevailing literature. See, for instance, Earl R. Rolph and George F. Break, Public Finance (New York, 1961), p. 398; and Cesare Cosciani, Istituzioni di Scienza delle Finanze (Turin, 1961), p. 516.
Hansen, op. cit.
There is general agreement that premiums are taxes, but there is some controversy about their classification as direct or indirect taxes. The OECD definition (Stone) considers all premiums as direct taxes. Some experts, however, consider employer contributions as indirect taxes, “because they are costs of carrying on business like any other tax on the use of a factor of production; even if they are shifted to the employee, he will not recognize them nor view them as a direct payment out of his income” (Otto Eckstein assisted by Vito Tanzi, “Comparison of European and United States Tax Structures and Growth Implications” in The Role of Direct and Indirect Taxes in the Federal Revenue System, a Conference Report of the National Bureau of Economic Research and the Brookings Institution (Princeton, 1964), p. 222).
See E. d’Albergo, “Caratteri e Ripercussioni delle Nuove Assicurazioni Sociali,” Rivista Bancaria, September 1940, and Economia della Finanza Pubblica (Bologna, 1952), Vol. 1, p. 224. For an opposing view, see G. Parravicini, lntroduzione alia Finanza Pubblica (Florence, 1965), pp. 84 ff.
Commenting on the introduction of the compulsory provident fund in the Indian coal mining industry, A.N. Agarwala, in Insurance in India: A Study of Insurance Aspects of Social Security in India (Allahabad, 1960), p. 568, wrote:
“Although the Coal Mines Provident Fund Scheme was ushered in the midst of warnings from some prophets of gloom, its success has been satisfactory. The workers who initially considered the deduction of provident fund payments from their wages to be some sort of compulsory levy, have now come to realise that the provident fund would be the best friend of their old age.”
Comisión (Prat) de Estudios de Seguridad Social, Deterioro de las Pensiones, Informe No. 8, 1961/62, pp. 25 ff.
Conclusion reached from an analysis of data for 18 developed countries by Margaret S. Gordon, The Economics of Welfare Policies (New York and London, 1963), p. 16. See also Henry Aaron, “Social Security: International Comparisons,” in Studies in the Economics of Income Maintenance, Otto Eckstein, ed., The Brookings Institution (Washington, 1967), p. 44.
It is not the purpose of this paper to try to define these criteria, which depend on the strategy that the developing country should adopt in order to promote rapid economic development. Against the “general” view that investment in the “interests” of contributors is the canon for social security institutions, see Alan T. Peacock, The Economics of National Insurance (Edinburgh, London, and Glasgow, 1952), p. 47. He points out that it is hard to define what these interests are, and that when no adult persons at work are exempted from contributing, it becomes essential for a government presumably acting in the interests of all its citizens to see that investment policy of social insurance institutions in no way conflicts with general economic and social policy, a fact which is likely to affect both the distribution and type of investment undertaken with the funds available.
28 peacock, op. cit., p. 44; Mario Alberto Coppini, P. Medolaghi, Guiseppi Petrilli, and others, Capitalizzazione e Ripartizione (Rome, 1951); Sergio Steve, Lezioni di Scienza delle Finanze (Padova, 1965), p. 373; and Eveline M. Burns, Social Security and Public Policy (New York, Toronto, and London, 1956), p. 190.
In Mexico they amounted to Mex$322 million, or about 14 per cent of total assets, in 1958.
On the restrictions on investment policy of pension and insurance institutes, see Pan American Union, Department of Social Affairs, Sintesis de la Seguridad Social Americana (Washington, 1961); H.E. Liebing, “The Investment of Old-Age, Invalidity and Survivor’s Insurance Fund,” Bulletin of the International Social Security Association, Year XVIII, February-April, 1965, pp. 115-34, especially pp. 117 ff. (Report X adopted by the International Social Security Association at its XVth Assembly, Washington, 1964).
In Mexico (1958), total assets amounted to Mex$2.3 billion, of which Mex$1.3 billion represented financial assets (mostly short-term loans, mortgages, and Government bonds) and Mex$1.0 billion physical assets. During 1960-64, a total of Mex$3.3 billion was invested by the sector, mainly in physical assets (hospitals and purchases of real estate); financial investments (mainly loans to contributors) accounted for about one third of the total.
In Nicaragua, Government bonds are held by the social security agency, but no information is available on their amount. Personal loans to contributors and loans to the National Development Institute are also owned.
In Guatemala (1964), public debt, mortgages, and time deposits represented one third of the total assets.
In 1964, old-age and survivors insurance and disability insurance trust funds amounted to over $22 billion, unemployment trust funds to $7.3 billion, group pension funds (including government plans) to $125.9 billion. See Robert J. Myers and Francisco Bayo, “Hospital Insurance, Supplementary Medical Insurance, and Old-Age, Survivors, and Disability Insurance: Financing Basis under the 1965 Amendments,” Social Security Bulletin, Vol. 28, October 1965, Tables 2 and 3; and Statistical Bulletin, U.S. Securities and Exchange Commission, Vol. 24, June 1965, p. 33.
For an analysis of the part played by the reserves in a disinflation policy of a developed country, see Peacock, op. cit., Chapter VI. He considers the availability of the reserves for the government in a debt management policy aimed to support the market without credit expansión. See also Paul A. Samuelson, “Principles and Rules in Modern Fiscal Policy: A Neo-Classical Reformulation,” in The Collected Scientific Papers of Paul A. Samuelson, Vol. II (Cambridge, Massachusetts, and London, 1966), pp. 1271-90.
As Bernstein (op. cit., p. 286) points out, “in these days of large social security reserves, savings on behalf of labor represent an important part of the accumulated wealth that is expropriated to satisfy the excessive demand of one or more of the active sectors of the economy.”
Automatic (or quasi-automatic) adjustment of pensions to changes in the price index has been introduced in Belgium, Denmark, Finland, and Sweden, and to changes in the wage level in Chile, France, Germany, and the Netherlands. See A. Kayser “Adjustment of Old-Age Pensions to Fluctuations in Economic Conditions,” Bulletin of the International Social Security Association, March-April 1962.
Bernstein, op. cit., p. 301.