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Voiting on social security reform with heterogeneous agents

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Author Info

  • Juan Carlos Conesa
  • Dirk Krueger

    (Universitat de Barcelona)

Abstract

This paper analyzes the quantitative role of idiosyncratic uncertainty in an economy in which rational agents vote on hypothetical social security reforms. We construct an Overlapping Generations economy in which individuals face idiosuncratic risk with respect to their labor productivity and the labor-leisure decision is endogenous. We find that role of a pay-as-you-go social security system as a partial insurance device significantly reduces political support for a transition to an economy with a fully funded system. Also, smoother transitions have less political support than more rapid transitions. We conclude that the status quo bias in favor of an unfunded social security system is stronger in economies in which agents of similar age differ significantly with respect to labor earnings and wealth due to idiosyncratic uncertainty.

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Bibliographic Info

Paper provided by Universitat de Barcelona. Espai de Recerca en Economia in its series Working Papers in Economics with number 36.

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Length: 0 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:bar:bedcje:199836

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Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.
Web page: http://www.ere.ub.es
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Cited by:
  1. Attanasio Orazio P. & Kitao Sagiri & Violante Giovanni L., 2006. "Quantifying the Effects of the Demographic Transition in Developing Economies," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 6(1), pages 1-44, April.

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