What social security: Beveridgean or Bismarckian?’, FEDA Working Paper no

port throughout the entire project. We are grateful to Tito Boeri and Fondazione Rodolfo De Benedetti to provide us with the EHCP data and especially to Mauro Maggioni to help us with the merge of the data. We are also grateful to Pierre Pestieau for a useful talk and to Franco Peracchi, Panu Poutvaara, Ernesto Villanueva and participants at the IIPF 2002 Meeting for helpful comments. All remaining errors are ours. Why are Bismarckian social security systems associated with larger public pension expenditures, a smaller fraction of private pension and lower income in-equality than Beveridgean systems? These facts are puzzling for political economy theories of social security which predict that Beveridgean systems, involving intra-generational redistribution, should enjoy larger support among low-income people and thus be larger. This paper explains these features in a bidimensional political economy model. In an economy with three income groups, low-income support a large, redistributive system; middle-income favor an earning-related system, while high-income oppose any public system, since they have access to a superior sav-ing technology, a private system. We show that, if income inequality is large, the voting majority of high-income and low-income supports a (small) Beveridgean system, and a large private pillar arises; the opposite occurs with low inequal-ity. Additionally, when the capital market provides higher returns, a Beveridgean system is more likely to emerge