On the role of labor supply for the optimal size of Social Security
AbstractThe paper studies the welfare effects of a Social Security system in a stylized overlapping generations economy with random production and capital accumulation. Different welfare concepts including long run optimality, social optimality, and time consistency are employed to determine the optimal size of the system. When labor supply is exogenous, a unique contribution level can be identified which is optimal according to all three concepts. When labor supply is endogenous, however, this result generically fails to hold and the long-run optimal solution is only constrained socially optimal while the time-consistent policy may even lead to an inefficient equilibrium.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 35 (2011)
Issue (Month): 7 (July)
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Web page: http://www.elsevier.com/locate/jedc
Overlapping generations Social Security Capital accumulation Labor supply Social optimality Long-run optimality Time consistency;
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