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The Extension of Social Security Coverage in Developing Countries

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  • Chung Tran

    ()
    (Indiana University Bloomington)

  • Juergen Jung

    ()
    (Indiana University Bloomington)

Abstract

We investigate the effects of extending the coverage of social security to uncovered elderly individuals in the informal sector in developing countries. We use a stochastic overlapping generations framework and incorporate important characteristics of developing countries including family transfers and a sizeable informal sector. Our calibrated model predicts that the introduction of a moderately sized social assistance program decreases steady state output by up to 3.25% and labor supply by up to 2.5%. In contrast to literature focusing on developed countries, the model predicts that extending the coverage of the social security system results in welfare gains for low income households. This result indicates that the insurance function and the redistribution function of the social assistance program dominate the distortionary effects in an environment without adequate risk sharing mechanisms and high inequality.

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Bibliographic Info

Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2007-026.

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Length: 44 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:inu:caeprp:2007026

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Keywords: Social Security Reform; Altruism; Informal Sector; Private Transfers; Savings; Labor Supply and Welfare;

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Cited by:
  1. Juergen Jung & Chung Tran, 2009. "Transfers and Labor Market Behavior of the Elderly in Developing Countries: Theory and Evidence from Vietnam," Working Papers 2009-01, Towson University, Department of Economics, revised Oct 2009.
  2. Santiago Levy & Norbert Schady, 2013. "Latin America's Social Policy Challenge: Education, Social Insurance, Redistribution," Journal of Economic Perspectives, American Economic Association, vol. 27(2), pages 193-218, Spring.

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