Partially Funded Social Security and Inter-Generational Distribution

Hyeon Park

Department of Economics and Finance, Manhattan College, New York, USA.

DOI: 10.4236/tel.[phone]                

Abstract

This paper introduces a parametric model of partially funded social security system and analyzes inter-generational distribution of consumption and welfare in an OLG general equilibrium. This paper specifically aims to examine the effects of transition toward more funded system on saving and capital accumulation. It is shown that an increase in intensity of fundedness increases capital accumulation unless the income effect from interest rate change outweighs other effects and negatively affects the total saving severely. By deriving closed form solutions for the variables, this paper finds that an increase in the intensity of fundedness increases saving but decreases consumption, when population growth rate is greater than the net return to capital. This paper also finds that for a partially funded system, an increase in tax rate increases public saving but reduces private saving unambiguously, while the effects on consumption and capital accumulation are not conclusive.

Keywords

Partially Funded Social Security, Inter-Generational Distribution, Welfare

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	Feldstein, M. (2005) Structural Reform of Social Security. Journal of Economic Perspectives, 19, 33-55. http://dx.doi.org/10.1257/0895330054048731
[2]	Kunze, L. (2012) Funded Social Security and Economic Growth. Economics Letters, 115, 180-183. http://dx.doi.org/10.1016/j.econlet.2011.11.032
[3]	Kaganovich, M. and Zilcha, I. (2012) Pay-As-You-Go or Funded Social Security? A General Equilibrium Comparison. Journal of Economic Dynamics & Control, 36, 455-467. http://dx.doi.org/10.1016/j.jedc.2011.03.015
[4]	Attanasio, O., Kitao, S. and Violante, G. (2007) Global Demographic Trends and Social Security Reform. Journal of Monetary Economics, 54, 144-198. http://dx.doi.org/10.1016/j.jmoneco.2006.12.010
[5]	Aubuchon, C.P., Conesa, J.C. and Garriga, C. (2011) A Primer on Social Security Systems and Reforms. Federal Reserve Bank of St. Louis Review, 93, 19-35.
[6]	Geanakoplos, J. and Zeldes, S. (2008) Reforming Social Security with Progressive Personal Accounts. NBER Working Paper No. 13979.
[7]	Gonzalez-Eiras, M. and Niepelt, D. (2008) The Future of Social Security. Journal of Monetary Economics, 55, 197-218. http://dx.doi.org/10.1016/j.jmoneco.2007.10.005
[8]	De La Croix, D. and Michel, P. (2002) A Theory of Economic Growth: Dynamics and Policy in Overlapping Generations. Cambridge University Press, Cambridge. http://dx.doi.org/10.1017/CBO9780511606434
[9]	Diamond, P. and Orszag, P.R. (2005) Saving Social Security. Journal of Economic Perspectives, 19, 11-32. http://dx.doi.org/10.1257/0895330054048722
[10]	Jimeno, J.F., Rojas, J.A. and Puente, S. (2008) Modelling the Impact of Aging on Social Security Expenditures. Economic Modelling, 25, 201-224. http://dx.doi.org/10.1016/j.econmod.2007.04.015
[11]	Hines, J.R. and Taylor, T. (2005) Short Falls in the Long Run: Predictions about the Social Security Trust Fund. Journal of Economic Perspectives, 19, 3-9. http://dx.doi.org/10.1257/0895330054048759
[12]	Pecchenino, R.A. and Utendorf, K.R. (1999) Social Security, Social Welfare and the Aging Population. Journal of Population Economics, 12, 607-623. http://dx.doi.org/10.1007/s001480050116
[13]	Lambrecht, S., Michel, P. and Vidal, J.-P. (2005) Public Pensions and Growth. European Economic Review, 49, 1261-1281. http://dx.doi.org/10.1016/j.euroecorev.2003.09.009