Social Security with Uninsurable Income Risk and Endogenous Borrowing Constraints
AbstractWe study the effects of a social security reform in a large overlapping generations model where markets are incomplete and households face uninsurable idiosyncratic income shocks. We depart from the previous literature by assuming that, because of lack of commitment in the credit market, the borrowing constraint in the unique asset is endogenously determined by individuals' incentives to default on previous debts. In our model, after the reform the incentives to default are lower and consequently households face more relaxed borrowing limits, leading to an increase in debt and a reduction in the size of precautionary savings. However, the quantitative impact of this mechanism on stationary aggregate savings is small. Computing the transitional dynamics for the basic model following the social security reform we obtain important welfare gains for workers at the bottom of the income distribution (equivalent to 1.3% of consumption each period) associated to the relaxation of the endogenous borrowing constraints, which are missed in an environment with fixed borrowing limits. (Copyright: Elsevier)
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 Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 11 (2008)
Issue (Month): 1 (January)
Contact details of provider:
Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
Web page: http://www.EconomicDynamics.org/review.htm
More information through EDIRC
Find related papers by JEL classification:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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.:
- Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2002.
"A Quantitative Theory of Unsecured Consumer Credit with Risk of Default,"
Centro de AltiÂsimos Estudios RiÂos PeÂ©rez(CAERP)
2, Centro de Altisimos Estudios Rios Perez (CAERP).
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, vol. 75(6), pages 1525-1589, November.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
- Dirk Krueger & Fabrizio Perri, 1999.
"Risk Sharing: Private Insurance Markets or Redistributive Taxes?,"
99-04, New York University, Leonard N. Stern School of Business, Department of Economics.
- Dirk Krueger & Fabrizio Perri, 1999. "Risk sharing: private insurance markets or redistributive taxes?," Staff Report 262, Federal Reserve Bank of Minneapolis.
- Andrea Butelmann & Francisco Gallego, 2000.
"Household Saving in Chile: Microeconomic Evidence,"
Working Papers Central Bank of Chile
63, Central Bank of Chile.
- Luisa Fuster, 1999.
"Is Altruism Important for Understanding the Long-Run Effects of Social Security?,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 616-637, July.
- Luisa Fuster, 1997. "Is altruism important for understanding the long-run effects of social security?," Economics Working Papers 234, Department of Economics and Business, Universitat Pompeu Fabra.
- Hansen, G D, 1993.
"The Cyclical and Secular Behaviour of the Labour Input: Comparing Efficiency Units and Hours Worked,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 8(1), pages 71-80, Jan.-Marc.
- Hansen, G.D., 1991. "The Cyclical and Secular Behavior of the Labor Input : Comparing Efficiency Units and Hours Worked," Papers 36, California Los Angeles - Applied Econometrics.
- Fernández-Villaverde, Jesús & Krueger, Dirk, 2011.
"Consumption And Saving Over The Life Cycle: How Important Are Consumer Durables?,"
Cambridge University Press, vol. 15(05), pages 725-770, November.
- Jesus Fernandez-Villaverde & Dirk Krueger, 2004. "Consumption and Saving over the Life Cycle: How Important are Consumer Durables?," 2004 Meeting Papers 357b, Society for Economic Dynamics.
- 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.
- Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
- Yan Bai & Jing Zhang, 2009.
"Financial Integration and International Risk Sharing,"
594, Research Seminar in International Economics, University of Michigan.
- Bai, Yan & Zhang, Jing, 2012. "Financial integration and international risk sharing," Journal of International Economics, Elsevier, vol. 86(1), pages 17-32.
- Yan Bai & Jing Zhang, 2006. "Financial Integration and International Risk Sharing," 2006 Meeting Papers 371, Society for Economic Dynamics.
- S. Rao Aiyagari, 1993.
"Uninsured idiosyncratic risk and aggregate saving,"
502, Federal Reserve Bank of Minneapolis.
- Timothy J. Kehoe & David K. Levine, 1992.
"Debt constrained asset markets,"
445, Federal Reserve Bank of Minneapolis.
- Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
- 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.
- Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
- Yang, Fang, 2013.
"Social security reform with impure intergenerational altruism,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 37(1), pages 52-67.
- Fang Yang, 2012. "Social Security Reform with Impure Intergenerational Altruism," Discussion Papers 12-01, University at Albany, SUNY, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.