The Sources of Pension Reforms in Western Europe: Domestic Factors, Policy Diffusion, or Common Shock?

Existing research has linked the adoption of pension reforms to demographic pressures, party ideology, and the diffusion of social policy ideas. We argue that pension policy change in Western Europe is also related to the “shock” of European Monetary Union (EMU). We use a Spatial Autoregressive Probit model with event-history features to test whether the decision to reform can be best explained by domestic factors, diffusion dynamics, or similar exposure to a common shock. We find that EMU made pension reform more likely for low and moderately indebted countries in the early 1990s but delayed reform in the late 1990s. Demographic pressures and policy diffusion also mattered for reform adoption, but not more than the EMU shock.