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The welfare effects of pay-as-you-go retirement programs: the role of tax and benefit timing

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  • Alan D. Viard

Abstract

It is well known that pay-as-you-go retirement programs reduce steady-state welfare and the capital stock in dynamically efficient OLG economies. The common two-period OLG model obscures, however, the dependence of these effects on the ages at which taxes are paid and benefits are received. Program changes that shift taxes to older workers or benefits to younger retirees have effects similar to reductions in program size, yielding steady-state welfare gains and increases in capital accumulation while imposing transition costs on current generations. This analysis has policy implications for both tax and benefit timing.

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Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 0602.

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Date of creation: 2006
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Handle: RePEc:fip:feddwp:0602

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Keywords: Social security ; Fiscal policy ; Taxation;

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  1. Martin Feldstein, 1989. "Imperfect Annuity Markets, Unintended Bequests, and the Optimal Age Structure of Social Security Benefits," NBER Working Papers 2820, National Bureau of Economic Research, Inc.
  2. Hubbard, R Glenn & Judd, Kenneth L, 1987. "Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints, and the Payroll Tax," American Economic Review, American Economic Association, vol. 77(4), pages 630-46, September.
  3. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  4. Abel, Andrew B, et al, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 1-19, January.
  5. Laurence J. Kotlikoff, 2001. "Generational Policy," NBER Working Papers 8163, National Bureau of Economic Research, Inc.
  6. Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Working Paper Series 580, Research Institute of Industrial Economics.
  7. Erik Hurst & Paul Willen, 2004. "Social Security and Unsecured Debt," NBER Working Papers 10282, National Bureau of Economic Research, Inc.
  8. Laurence S. Seidman & Kenneth A. Lewis, 2003. "The Later You Pay, the Higher the k," Southern Economic Journal, Southern Economic Association, vol. 69(3), pages 560-577, January.
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