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Social Security Evaluation: A Critique

  • SOARES, JORGE

The objective of this work is to evaluate the impact of a social security system on the well-being of each individual in the economy and to challenge the measures commonly used in this type of policy analysis. We show that measures based on the notion of actuarial fairness do not measure correctly the impact that social security has on each individual's well-being. We study the bias of these measures by relating it to different sources of heterogeneity and to the impact of social security on individual's decisions and on factor prices. In order to correctly evaluate the impact of social security on the well-being of an individual we need to take into account that this policy affects her welfare in other ways than through its direct impact on her lifetime income. Social security influences her labor and savings decisions as well as factor prices, affecting leisure levels, labor income and the return to savings. In sum, this paper reinforces the belief that, in order to accurately evaluate how social security system affects the well-being of the individuals, we need to use a general equilibrium framework where we can account for all the repercussions of social security.

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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 9 (2005)
Issue (Month): 01 (February)
Pages: 57-97

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Handle: RePEc:cup:macdyn:v:9:y:2005:i:01:p:57-97_04
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