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The risk-sharing implications of alternative social security arrangements

Listed author(s):
  • Storesletten, Kjetil
  • Telmer, Chris I.
  • Yaron, Amir

An important aspect of the current U.S. social security system is the tradeoff between the risk sharing it provides and the distortions it imparts on private decisions. We focus on this tradeoff as it applies to labor market risk and capital accumulation. Specifically, we compare the current U.S. system to a particular proposal put forth in 1996 by the federal \citeasnoun{Advisory-Council-96}. We also examine the merits of abolishing social security altogether. We find that, absent general equilibrium effects, the risk sharing benefits of the current system outweigh the distortions associated with either the alternative or a system of privately administered pensions. Once we incorporate equilibrium effects, however, the interaction between the social security system, private savings decisions, and the means with which the government finances its non-pension expenditures, result in a significant welfare benefit being associated with either reform or abolition. These welfare gains arise in spite of the fact that we explicitly incorporate the `social security debt:' the social cost of meeting the obligations associated with the current system.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167-2231(99)00028-7
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Article provided by Elsevier in its journal Carnegie-Rochester Conference Series on Public Policy.

Volume (Year): 50 (1999)
Issue (Month): 1 (June)
Pages: 213-259

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Handle: RePEc:eee:crcspp:v:50:y:1999:i::p:213-259
Contact details of provider: Web page: http://www.elsevier.com/locate/jme

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  1. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
  2. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, September.
  3. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 83-114, June.
  4. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-467, June.
  5. Mark Huggett & Gustavo Ventura, 1999. "On the Distributional Effects of Social Security Reform," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 498-531, July.
  6. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
  7. Geanakoplos, John, 1990. "An introduction to general equilibrium with incomplete asset markets," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 1-38.
  8. Martin Feldstein, 1997. "Transition to a Fully Funded Pension System: Five Economic Issues," NBER Working Papers 6149, National Bureau of Economic Research, Inc.
  9. Mark Gertler, 1997. "Government Debt and Social Security in a Life-Cycle Economy," NBER Working Papers 6000, National Bureau of Economic Research, Inc.
  10. Storesletten, Kjetil & Telmer, Christopher I. & Yaron, Amir, 2004. "Consumption and risk sharing over the life cycle," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 609-633, April.
  11. Mariacristina De Nardi & Selahattin Imrohoroglu & Thomas J. Sargent, 1999. "Projected U.S. Demographics and Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 575-615, July.
  12. Hubbard, R Glenn & Judd, Kenneth L, 1987. "Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints, and the Payroll Tax," American Economic Review, American Economic Association, vol. 77(4), pages 630-646, September.
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