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“Demand for Private Annuities and Social Security: Consequences to Individual Wealth”

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  • Sanchez-Romero, Miguel

    (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)

Abstract

This 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.

Suggested Citation

  • Sanchez-Romero, Miguel, 2006. "“Demand for Private Annuities and Social Security: Consequences to Individual Wealth”," Working Papers in Economic Theory 2006/07, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    • Handle: RePEc:uam:wpaper:200607
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    References listed on IDEAS

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    More about this item

    Keywords

    Actuarially Fair Funded Social Security; Crowding Out Effect; Public and Private Wealth Pro-files;
    All these keywords.

    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 - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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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