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Alternative Social Security Systems and Growth

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Author Info
Michael Kaganovich ()
Itzhak Zilcha ()

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Abstract

Demographic trends in most developed economies are characterized by rising longevity and decreasing birthrates. These trends endanger the sustainability of the current public pension systems. Therefore social security reform proposals are on the agenda in many countries. This paper demonstrates that the analysis of fiscal sustainability of social security must include an additional dimension of public policy, namely education funding. Indeed, the productivity growth of future workers, which depends on human capital accumulation, may outweigh the impact of the demographic problem. This fact is true under both pay-as-you-go (PAYG) and fully funded (FF) social security system. We consider an OLG economy where government, in addition to running social security, also funds education of future workers by means of taxes collected from the current ones. The education tax rates are chosen, in each period, by a majoritarian rule among the relevant constituents. We demonstrate that while the FF system results in relatively higher rates of physical capital accumulation, then under some conditions, other things equal, the PAYG social security regime leads to the choice of relatively higher respective levels of education tax rates in all generations, and thereby to higher rates of human capital accumulation.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2353.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2353

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Related research
Keywords: social security; funding; growth; human capital;

Find related papers by JEL classification:
I20 - Health, Education, and Welfare - - Education - - - General

References listed on IDEAS
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  1. Michele Boldrin & Ana Montes, 2005. "The Intergenerational State Education and Pensions," Review of Economic Studies, Blackwell Publishing, vol. 72(3), pages 651-664, 07. [Downloadable!] (restricted)
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  2. Panu Poutvaara, 2006. "On the political economy of social security and public education," Journal of Population Economics, Springer, vol. 19(2), pages 345-365, June. [Downloadable!] (restricted)
    Other versions:
  3. Gerhard Glomm & Michael Kaganovich, 2003. "Distributional Effects of Public Education in an Economy with Public Pensions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 917-937, 08. [Downloadable!] (restricted)
  4. Junsen Zhang & Junxi Zhang, 1998. "Social Security, Intergenerational Transfers, and Endogenous Growth," Canadian Journal of Economics, Canadian Economics Association, vol. 31(5), pages 1225-1241, November. [Downloadable!] (restricted)
  5. Jorge Soares, 2006. "A dynamic general equilibrium analysis of the political economy of public education," Journal of Population Economics, Springer, vol. 19(2), pages 367-389, June. [Downloadable!] (restricted)
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  6. Gradstein, Mark & Kaganovich, Michael, 2004. "Aging population and education finance," Journal of Public Economics, Elsevier, vol. 88(12), pages 2469-2485, December. [Downloadable!] (restricted)
    Other versions:
  7. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier. [Downloadable!] (restricted)
  8. Peter A. Diamond & Peter R. Orszag, 2005. "Saving Social Security," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 11-32, Spring. [Downloadable!] (restricted)
  9. Kaganovich, Michael & Zilcha, Itzhak, 1999. "Education, social security, and growth," Journal of Public Economics, Elsevier, vol. 71(2), pages 289-309, February. [Downloadable!] (restricted)
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  10. Marko Kothenbürger & Panu Poutvaara, 2006. "Social Security Reform and Investment in Education: Is There Scope for a Pareto Improvement?," Economica, London School of Economics and Political Science, vol. 73(290), pages 299-319, 05. [Downloadable!] (restricted)
  11. Karni, Edi & Zilcha, Itzhak, 1989. "Aggregate and distributional effects of fair social security," Journal of Public Economics, Elsevier, vol. 40(1), pages 37-56, October. [Downloadable!] (restricted)
  12. DOCQUIER, FrŽdŽric & PADDISON, Oliver & ,, 2000. "Growth and equality effects of pension plans," CORE Discussion Papers 2000036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  13. Nelson, Phillip, 1999. " Redistribution and the Income of the Median Voter," Public Choice, Springer, vol. 98(1-2), pages 187-94, January. [Downloadable!] (restricted)
  14. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September. [Downloadable!] (restricted)
  15. Martin Feldstein, 2005. "Structural Reform of Social Security," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 33-55, Spring. [Downloadable!] (restricted)
  16. Martin Feldstein, 2005. "Structural Reform of Social Security," NBER Working Papers 11098, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Kelvin R. Utendorf & Rowena A. Pecchenino, 1999. "Social security, social welfare and the aging population," Journal of Population Economics, Springer, vol. 12(4), pages 607-623. [Downloadable!] (restricted)
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  18. Alexander Kemnitz, 2000. "Social security, public education, and growth in a representative democracy," Journal of Population Economics, Springer, vol. 13(3), pages 443-462. [Downloadable!] (restricted)
  19. Sheshinski, Eytan & Weiss, Yoram, 1981. "Uncertainty and Optimal Social Security Systems," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 189-206, May. [Downloadable!] (restricted)
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  20. Lambrecht, Stephane & Michel, Philippe & Vidal, Jean-Pierre, 2005. "Public pensions and growth," European Economic Review, Elsevier, vol. 49(5), pages 1261-1281, July. [Downloadable!] (restricted)
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  21. James R. Hines Jr. & Timothy Taylor, 2005. "Shortfalls in the Long Run: Predictions about the Social Security Trust Fund," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 3-9, Spring. [Downloadable!] (restricted)
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