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Inequality and Social Security Reforms

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  • Jean-Olivier Hairault

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • François Langot

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

Abstract

This paper develops a quantitative Markovian overlapping generations model with altruistic individuals and incomplete financial markets in order to analyze the long-run distributional implications of two hypothetical public social security policy changes, made in response to impending future demographic shifts. The two policy changes considered are first, raising the tax rate while keeping the replacement rate constant and second, keeping the tax rate constant while lowering the replacement rate. Whereas this latter policy is detrimental to the relative situation of the retirees, the huge financial heterogeneity in the first scenario explains why the increase in the proportional labor tax is relatively badly absorbed by low-productivity workers, leading to an increase in welfare inequality. We show that the very popular idea that a more funded system would ineluctably lead to more inequalities in well-being can be justified only by focusing on the inequality of positions in case of general equilibrium.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00270290.

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Date of creation: 2008
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Publication status: Published, Journal of Economic Dynamics and Control, 2008, 32, 2, 386-410
Handle: RePEc:hal:cesptp:halshs-00270290

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00270290
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Keywords: Inequality; social security reform; idiosyncratic uncer-tainty; incomplete markets; altruism;

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References

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  1. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(3), pages 659-84, August.
  2. Edward C. Prescott, 2003. "Why do Americans work so much more than Europeans?," Staff Report, Federal Reserve Bank of Minneapolis 321, Federal Reserve Bank of Minneapolis.
  3. Mariacristina De Nardi, 2002. "Wealth inequality and intergenerational links," Staff Report, Federal Reserve Bank of Minneapolis 314, Federal Reserve Bank of Minneapolis.
  4. Alberto F. Alesina & Edward L. Glaeser & Bruce Sacerdote, 2006. "Work and Leisure in the U.S. and Europe: Why So Different?," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 1-100 National Bureau of Economic Research, Inc.
  5. Kjetil Storesletten & Chris Telmer & Amir Yaron, 1998. "The risk sharing implications of alternative social security arrangements," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 252, Carnegie Mellon University, Tepper School of Business.
  6. Luisa Fuster, 1999. "Is Altruism Important for Understanding the Long-Run Effects of Social Security?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 616-637, July.
  7. David Domeij & Paul Klein, 2002. "Private Pensions: To What Extent Do They Account for Swedish Wealth Inequality?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 503-534, July.
  8. Orazio Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and bumps in lifetime consumption," IFS Working Papers, Institute for Fiscal Studies W95/14, Institute for Fiscal Studies.
  9. Richard Rogerson, 2006. "Understanding Differences in Hours Worked," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 365-409, July.
  10. R. Glenn Hubbard & Kenneth L. Judd, 1985. "Social Security and Individual Welfare: Precautionary Saving, LiquidityConstraints, and the Payroll Tax," NBER Working Papers 1736, National Bureau of Economic Research, Inc.
  11. Joseph G. Altonji & Jennifer Oldham, 2003. "Vacation laws and annual work hours," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 19-29.
  12. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
  13. Ana Castaneda & Javier Diaz-Gimenez & Jose-Victor Rios-Rull, 2003. "Accounting for the U.S. Earnings and Wealth Inequality," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(4), pages 818-857, August.
  14. Mark Huggett & Gustavo Ventura, 1998. "On the Distributional Effects of Social Security Reform," Working Papers, Centro de Investigacion Economica, ITAM 9801, Centro de Investigacion Economica, ITAM.
  15. Anne Laferrère & Luc Arrondel, 1991. "Successions et héritiers à travers les données fiscales," Économie et Prévision, Programme National Persée, vol. 100(4), pages 137-159.
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Cited by:
  1. repec:hal:wpaper:halshs-00279167 is not listed on IDEAS
  2. Batyra, Anna & de la Croix, David & Pierrard, Olivier & Sneessens, Henri R., 2013. "Declining bargaining power of workers and the rise of early retirement in Europe," GIAM Working Papers, Galatasaray University Economic Research Center 13-6, Galatasaray University Economic Research Center.
  3. de la CROIX, David & PIERRARD, Olivier & SNEESSENS, Henri R., . "Aging and pensions in general equilibrium: labor market imperfections matter," CORE Discussion Papers RP -2495, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Christophe Hachon, 2008. "Redistribution, Pension Systems and Capital Accumulation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00279167, HAL.
  5. Christophe Hachon, 2009. "Who Really Benefits from Pension Systems ? When Life Expectancy Matters," Revue d'économie politique, Dalloz, vol. 0(4), pages 613-632.
  6. Olivier Pierrard & Henri R. Sneessens & David de la Croix, 2010. "Ageing, Pensions and The Labour Market," 2010 Meeting Papers 779, Society for Economic Dynamics.
  7. Vincent Touzé, 2005. "Fiscal incidence of unfunded pension system: an analytical investigation," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2005-03, Observatoire Francais des Conjonctures Economiques (OFCE).
  8. Falilou Fall, 2004. "Pension reform, assets returns and wealth distribution," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) v04033, Université Panthéon-Sorbonne (Paris 1).
  9. Simonovits, András, 2009. "Népességöregedés, tb-nyugdíj és megtakarítás - parametrikus nyugdíjreformok
    [Population aging, the public pension system, and savings: parametric pension reforms]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 297-321.
  10. repec:hal:wpaper:halshs-00279651 is not listed on IDEAS

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