Pension systems and aggregate shocks
AbstractThe U.S. Social Security Trust Fund faces depletion over the coming decades, and there is a near consensus that social security reform is necessary. Under one suggestion for partial privatization, current surpluses would fund private, individual retirement accounts, and the private savings would make up for future benefit cuts. ; Moving away from social security, however, causes some people to point toward excessive risks associated with private savings. But social security cannot be completely riskless either because its long-term viability depends on such volatile factors as productivity growth, fertility, and immigration, which make social security risky for the same reasons financial assets are. ; To quantify the sensitivity of different retirement schemes to large aggregate shocks, this article provides a model economy in which aggregate shocks affect not only financial market returns but also a pay-as-you-go (PAYGO) pension system. The model depicts a life-cycle economy in which agents work when they are young and their old-age consumption is financed by a combination of a PAYGO pension system and private savings. ; The model simulations show that, in the long run, privatization makes every generation better off, even if a large aggregate shock occurs. The intuition for this result is that under a privatized pension system, savings are higher. This higher savings level increases the capital stock and thus increases welfare enough to insulate all future generations even from large shocks.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Federal Reserve Bank of Atlanta in its journal Economic Review.
Volume (Year): (2003)
Issue (Month): Q1 ()
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrew G. Biggs, 2009.
30958, American Enterprise Institute.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- Mariacristina De Nardi & Selahattin Imrohoroglu & Thomas J. Sargent, 1999.
"Projected U.S. Demographics and Social Security,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 575-615, July.
- William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
- Feldstein, Martin & Ranguelova, Elena, 2001. "Individual Risk in an Investment-Based Social Security System," Scholarly Articles 2797440, Harvard University Department of Economics.
- Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, vol. 6(1), pages 83-114, June.
- Henning Bohn, 1999.
"Social Security and Demographic Uncertainty: The Risk Sharing Properties of Alternative Policies,"
NBER Working Papers
7030, National Bureau of Economic Research, Inc.
- Henning Bohn, 2001. "Social Security and Demographic Uncertainty: The Risk-Sharing Properties of Alternative Policies," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 203-246 National Bureau of Economic Research, Inc.
- Kjetil Storesletten & Chris Telmer & Amir Yaron, 1998.
"The risk sharing implications of alternative social security arrangements,"
GSIA Working Papers
252, Carnegie Mellon University, Tepper School of Business.
- Storesletten, Kjetil & Telmer, Chris I. & Yaron, Amir, 1999. "The risk-sharing implications of alternative social security arrangements," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 213-259, June.
- Martin Feldstein & Elena Ranguelova, 2001.
"Individual Risk in an Investment-Based Social Security System,"
American Economic Review,
American Economic Association, vol. 91(4), pages 1116-1125, September.
- Martin Feldstein & Elena Ranguelova, 2001. "Individual Risk in an Investment-Based Social Security System," NBER Working Papers 8074, National Bureau of Economic Research, Inc.
- Dirk Krueger & Felix Kubler, 2002. "Intergenerational Risk-Sharing via Social Security when Financial Markets Are Incomplete," American Economic Review, American Economic Association, vol. 92(2), pages 407-410, May.
- Juan Carlos Conesa & Carlos Garriga, 2004.
"Optimal Response to a Demographic Shock,"
157, Barcelona Graduate School of Economics.
- Juan Carlos Conesa & Carlos Garriga, 2009.
"Optimal response to a transitory demographic shock in Social Security financing,"
Federal Reserve Bank of St. Louis, issue Jan, pages 33-48.
- Juan Carlos Conesa & Carlos Garriga, 2007. "Optimal response to a transitory demographic shock in Social Security financing," Working Papers 2007-041, Federal Reserve Bank of St. Louis.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Rector).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.