“Demand for Private Annuities and Social Security: Consequences to Individual Wealth”
AbstractThis paper focuses on comparing public and private individual wealth over the life-cycle, when individuals face an uncertain length of life. We also analyze how a fully funded and actuarially fair Social Security affects the desire to annuitize private wealth. Within this framework, we find that a social security system can contribute to reaching a higher national wealth, even when the economy is composed of selfish individuals. Thus, by means of some simulations we obtain the result that a payroll tax of 6 percent increases individual wealth up to 17 percent. This increment, however, is obtained under the assumption that insurance companies offer fair annuities. On the contrary, under an unfair private annuity market, individual wealth can decrease around 10 percent for the same payroll tax.
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Bibliographic InfoPaper provided by Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History) in its series Working Papers in Economic Theory with number 2006/07.
Length: 26 pages
Date of creation: Jun 2006
Date of revision:
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Web page: http://www.uam.es/departamentos/economicas/analecon/default.html
More information through EDIRC
Actuarially Fair Funded Social Security; Crowding Out Effect; Public and Private Wealth Pro-files;
Find related papers by JEL classification:
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
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