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Is there any gain from social security privatization?

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  • Li, Shiyu
  • Lin, Shuanglin
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    Abstract

    Increasing calls for a social security reform of switching from the pay-as-you-go (PAYG) system to a funded system has been seen in recent decades. This paper examines the effect of this reform on capital accumulation and the welfare of each generation. Three methods are used to finance the pension debt, government debt financing, tax financing, and government asset financing. With government debt or tax financing, the market equilibrium remains unchanged and all generations are as well off in the new system as in the PAYG system. Thus, switching from the PAYG system to a funded system is neutral. With government asset financing, the interest rate will decrease, private capital will increase, but the total output may either increase or decrease. The welfare effect is also ambiguous in general, depending on the rate of return of government assets. With plausible parameters, our simulation shows that the reform will lower the interest rate, increase private capital, and lower government capital in the short run, but raise government capital and increase output in the long run.

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    Bibliographic Info

    Article provided by Elsevier in its journal China Economic Review.

    Volume (Year): 22 (2011)
    Issue (Month): 3 (September)
    Pages: 278-289

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    Handle: RePEc:eee:chieco:v:22:y:2011:i:3:p:278-289

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    Web page: http://www.elsevier.com/locate/chieco

    Related research

    Keywords: Social security reforms PAYG system Funded system Overlapping generations model;

    References

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    1. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Wang, Lijian & BĂ©land, Daniel & Zhang, Sifeng, 2014. "Pension fairness in China," China Economic Review, Elsevier, vol. 28(C), pages 25-36.

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