A Positive Theory of Social Security
AbstractSocial Security programmes around the world link public pensions to retirement: people do not lose their pensions if they make a million dollars a year in the stock market, but they do confront marginal tax rates of up to 100% if they choose to work. After arguing that most existing theories cannot explain this fact, I construct a positive theory which is consistent with it. The main idea is that pensions are a means to induce retirement, that is, to buy the elderly out of the labour force. The reason is that aggregate output is higher if the elderly do not work. This is modelled through positive externalities in the average stock of human capital: because skills depreciate with age, the elderly have lower than average skills and, as a result, they have a negative effect on the productivity of the young. When the difference between the skill level of the young and that of the old is large enough, aggregate ouput in an economy where the elderly do not work is higher. Retirement is desirable in this case, and social security transfers are the means by which such retirement is induced. The theory developed in this paper is also shown to be consistent with a number of other regularities.
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 InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1025.
Date of creation: Sep 1994
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Other versions of this item:
- H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
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.:
- Adam B. Jaffe & Manuel Trajtenberg & Rebecca Henderson, 1992.
"Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations,"
NBER Working Papers
3993, National Bureau of Economic Research, Inc.
- Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August.
- Jaffe, A.B. & Trajtenberg, M., 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," Papers 14-92, Tel Aviv.
- Zvi Bodie & John B. Shoven, 1983. "Financial Aspects of the United States Pension System," NBER Books, National Bureau of Economic Research, Inc, number bodi83-1, July.
- Laurence J. Kotlikoff & David A. Wise, 1987.
"The Incentive Effects of Private Pension Plans,"
in: Issues in Pension Economics, pages 283-340
National Bureau of Economic Research, Inc.
- Casey B. Mulligan & Xavier Sala-i-Martin, 1992.
"Transitional Dynamics in Two-Sector Models of Endogenous Growth,"
NBER Working Papers
3986, National Bureau of Economic Research, Inc.
- Mulligan, Casey B & Sala-i-Martin, Xavier, 1993. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 739-73, August.
- Mulligan, C.B. & Sala-i-Martin, X., 1992. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," Papers 651, Yale - Economic Growth Center.
- Barro, Robert J, 1974.
"Are Government Bonds Net Wealth?,"
Journal of Political Economy,
University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
- Michael J. Boskin & John B. Shoven, 1987. "Concepts and Measures of Earnings Replacement During Retirement," NBER Chapters, in: Issues in Pension Economics, pages 113-146 National Bureau of Economic Research, Inc.
- Rodrik, Dani & Alesina, Alberto, 1994.
"Distributive Politics and Economic Growth,"
4551798, Harvard University Department of Economics.
- Eric J. Bartelsman & Ricardo J. Caballero & Richard K. Lyons, 1991.
"Short and Long Run Externalities,"
NBER Working Papers
3810, National Bureau of Economic Research, Inc.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.