Sovereign debt and social security

In the aftermath of the most recent (2008) financial crisis, several countries have realized the effect that social security had in their sovereign debt and have tried to find measures to contain it. Of course the contribution of social security to the country debt very much depends on the system each country operates and the (in)dependence of social security from the government budget. The mix in some countries became even more explosive due to the increase in unemployment, the decrease in social security contribution and the drop in the fertility and replacement rate. The debate is vivid both in the United States and in the European countries, as the authorities and the practitioners argue whether Social Security adds to the country debt. At the same time, one needs to recall that social security (almost independently from the system in force) is one of the top investors – lenders of the country as it puts the majority of its accumulated funds into government bonds. In this paper we seek evidence of the contribution of social security to the debt of the countries, especially the ones that faced serious debt burden over the last decade. For that we employ an econometric model (ordinary least squares) for the Organization for Economic Cooperation and Development (OECD) countries of interest. The dependent variable is the level of debt (as an absolute amount and percent of GDP) and the independent variables are the different metrics of social security benefits (liabilities) and assets (financial and contributions) for (at least) the last 10 years. Our sources of data are the OECD and the World Bank.