A Positive Theory of Social Security
In many countries, social security accounts for a large fraction of the government budget. Why is this so, given that at any point in time the number of recipients of social security benefits is smaller than the number of contributors? In the overlapping-generations model studied in this paper, all individuals currently alive vote on social security in every period. In equilibrium, the size of social security is larger, the greater is the proportion of elderly people in the population, and the greater is the inequality of pre-tax income within each generation. Both predictions of the theory are supported by the empirical evidence in cross-country data. Copyright 2000 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 102 (2000)
Issue (Month): 3 (June)
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References listed on IDEAS
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- Michael J. Boskin & Laurence J. Kotlikoff & Douglas J. Puffert & John B. Shoven, 1986.
"Social Security: A Financial Appraisal Across and Within Generations,"
NBER Working Papers
1891, National Bureau of Economic Research, Inc.
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- Loewy, Michael B., 1988. "Equilibrium policy in an overlapping generations economy," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 485-499.
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- Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
- Kotlikoff, Laurence J & Persson, Torsten & Svensson, Lars E O, 1988. "Social Contracts as Assets: A Possible Solution to the Time-Consistency Problem," American Economic Review, American Economic Association, vol. 78(4), pages 662-677, September.
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