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Aggregate Implications Of Defined Benefit And Defined Contribution Systems

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Author Info
Francisco Gomes () (Center for Retirement Research at Boston College)
Alexander Michaelides

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Abstract

We use a general equilibrium life-cycle model with incomplete markets and heterogeneous agents to evaluate the macroeconomic and welfare implications of Defined Benefit (DB) versus Defined Contribution (DC) systems, and to investigate the effects of incremental reform within a particular system. Extensive calibrations illustrate the trade-off between effciency and redistribution that a tax-financed, DB social security system generates. We find that social welfare is maximized for small but positive levels of DB because of the redistributive value associated with these systems. On the other hand, steady-state within-DC system comparisons reveal that a zero DC tax rate maximizes social welfare.

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Paper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number 2003-16.

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Date of creation: 25 Feb 2004
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Handle: RePEc:crr:crrwps:2003-16

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  6. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    • 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)
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  10. Luisa Fuster & Ayse Imrohoroglu & Selahattin Imrohoroglu, 2003. "A welfare analysis of social security in a dynastic framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1247-1274, November. [Downloadable!] (restricted)
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  15. 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. [Downloadable!]
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  16. Gertler, Mark, 1999. "Government debt and social security in a life-cycle economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 61-110, June. [Downloadable!] (restricted)
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  19. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September. [Downloadable!] (restricted)
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  20. Mariacristina deNardi, 2000. "Wealth Inequality and Intergenerational Links," Econometric Society World Congress 2000 Contributed Papers 0547, Econometric Society. [Downloadable!]
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  21. Aiyagari, S Rao, 1995. "Optimal Capital Income Taxation with Incomplete Markets, Borrowing Constraints, and Constant Discounting," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1158-75, December. [Downloadable!] (restricted)
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  22. Peter Diamond & John Geanakoplos, 2001. "Social Security Investment in Equities," Cowles Foundation Discussion Papers 1314R, Cowles Foundation, Yale University, revised Aug 2002. [Downloadable!]
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  23. Jonathan Skinner & Stephen P. Zeldes, 2002. "The Importance of Bequests and Life-Cycle Saving in Capital Accumulation: A New Answer," American Economic Review, American Economic Association, vol. 92(2), pages 274-278, May. [Downloadable!]
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  1. Niku Määttänen & Panu Poutvaara, 2007. "Should Old-Age Benefits Be Earnings-Tested?," IZA Discussion Papers 2616, Institute for the Study of Labor (IZA). [Downloadable!]
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