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Social Security Evaluation: A Critique

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  • SOARES, JORGE

Abstract

I study the bias of actuarially fair measures commonly used to evaluate the impact of a social security system on the well-being of individuals. I investigate how the magnitude of this bias is affected by different features of a pay-as-you-go social security system. Social security affects an individual's welfare in ways other than through its direct effect on her lifetime income. It influences labor and savings decisions and hence factor prices, affecting labor income and the return to savings. Although social security can provide insurance against risk, it can also push borrowing-constrained individuals further away from their optimal consumption paths. I show that, by ignoring these features, actuarially fair measures can grossly misevaluate the impact of social security on the well-being of an individual.

Suggested Citation

  • Soares, Jorge, 2005. "Social Security Evaluation: A Critique," Macroeconomic Dynamics, Cambridge University Press, vol. 9(1), pages 57-97, February.
    • Handle: RePEc:cup:macdyn:v:9:y:2005:i:01:p:57-97_04
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    Cited by:

    1. Turnovsky, Stephen J. & Bruce, Neil, 2007. "Uncertain Retirement and the Effects of Social Insurance on Savings, Wealth, and Welfare," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 1, pages 1-41.

    More about this item

    JEL classification:

    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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