The Birth and
Growth of the Social-Insurance State: Explaining Old-Age and Medical Insurance Across
Countries
By David M. Cutler and Richard Johnson
December 2001
RWP 01-13
Research Division
Federal Reserve Bank of Kansas City
Abstract
We seek to explain why countries have adopted national Old-Age Insurance and Health Insurance programs. Theoretical work has posited several factors that could lead to this adoption: the strain from expanding capitalism; the need for political legitimacy; the desire to transfer to similar people; increased wealth; and the outcome of leviathan government. We relate the probability of a country’s creating social insurance to proxies for each of these theories. We find weak evidence that the probability of adopting a system declines with increases in wealth and with greater ethnic heterogeneity. Still, none of the theories is very strongly related to system adoption. We conclude that social insurance can be politically expedient for many different reasons.
Keywords: Structure and Scope of Government, Government Expenditures and Health, Social Security and Public Pensions, Economics of the Elderly, Economic History
JEL Codes: H11, H51, H55, J14, N00
David M. Cutler is a professor of economics at Harvard University and a faculty research fellow at the National Bureau of Economic Research. Richard Johnson is an economist at the Federal Reserve Bank of Kansas City. The authors are grateful to participants in the NBER Summer Institute and Harvard Public Finance Seminar and workshop for their comments and suggestions. The views expressed herein are those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
richard.johnson@kc.frb.org