Social Security, Intergenerational Transfers, and Growth

The paper studies the effects of social security on the long-run per capita income growth and population growth. We incorporate the substitutional effect of social security on intergenerational transfers for old-age support within the family into an endogenous growth model. We find that under either an unfunded social security system or a fully funded social security system, the effects of social security on growth largely depend on parents' taste for the quantity of children. Social security may promote economic growth if increasing the social security tax reduces intergenerational transfers and population growth rate. Quantitative results verify the theoretical conclusions and show that an unfunded social security system is more effective in substituting intergenerational transfers within the family and hence is more likely to stimulate economic growth.