The paper uses an overlapping generations model to analyse the problem of a benevolent planner determining the pay-as-you-go tax rate and the level of funded savings, in an economy where both are policy variables. We characterize the conditions under which it is desirable to have both a positive tax rate and a positive level of savings. The optimal size of the tax rate and of savings depend both on the stochastic characteristics of earnings growth and the return to savings, and on the shape of the utility function of the representative agent. Among the comparative statics results presented, the central one is that increasing the variability of earnings raises the desirability of a pay-as-you-go system, under general conditions. This is consistent with earlier analyses of pay-as-you-go as a provider of intergenerational insurance. A numerical example using the CARA utility and normal distributions illustrates the calculation of optimal tax and savings levels, using annual data for post-War France.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number
2004-15.
References listed on IDEAS 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.:
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)
Cited by: (explanations, 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.)