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The extension of social security coverage in developing countries

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  • Jung, Juergen
  • Tran, Chung

Abstract

We study the dynamic general equilibrium effects of introducing a social pension program to elderly informal sector workers in developing countries who lack formal risk sharing mechanisms against income and longevity risks. To this end, we formulate a stochastic dynamic general equilibrium model that incorporates defining features of developing countries: a large informal sector, private transfers as an informal safety net, and a non-universal social security system. We find that the extension of retirement benefits to informal sector workers results in efficiency losses due to adverse effects on capital accumulation and the allocation of resources across formal and informal sectors. Despite these losses recipients of social pensions experience welfare gains as the positive insurance effects attributed to the extension of a social insurance system dominate. The welfare gains crucially depend on the skill distribution, private intra-family transfers and the specific tax used to finance the expansion.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 99 (2012)
Issue (Month): 2 ()
Pages: 439-458

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Handle: RePEc:eee:deveco:v:99:y:2012:i:2:p:439-458

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

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Keywords: Informal sector; Family social safety nets; Social pension; General equilibrium; Welfare;

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Cited by:
  1. Chung Tran, 2008. "Transfers and Labor Market Behavior of the Elderly in Developing Countries: Theory and Evidence from Vietnam," Caepr Working Papers 2008-018, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  2. Santiago Levy & Norbert Schady, 2013. "Latin America's Social Policy Challenge: Education, Social Insurance, Redistribution," Journal of Economic Perspectives, American Economic Association, vol. 27(2), pages 193-218, Spring.

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