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Intergenerational risk shifting through social security and bailout politics

Listed author(s):
  • Bossi, Luca

This paper adopts a stochastic overlapping generations framework to analyze the allocation of aggregate financial risks under different social security systems and a majority voting rule. We study whether there will be switches between pay-as-you-go (PAYG) and fully funded (FF) systems in such an economy. We show that in case of a negative aggregate shock, low-income young individuals will form a political coalition with the elderly to implement a PAYG system. PAYG scheme is shown to persist even after a good aggregate shock if the system is redistributive enough.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 7 (July)
Pages: 2240-2268

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Handle: RePEc:eee:dyncon:v:32:y:2008:i:7:p:2240-2268
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Antonio Rangel & Richard Zeckhauser, 2001. "Can Market and Voting Institutions Generate Optimal Intergenerational Risk Sharing?," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 113-152 National Bureau of Economic Research, Inc.
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  8. Krueger, Dirk & Kübler, Felix, 2005. "Pareto Improving Social Security Reform when Financial Markets Are Incomplete," CEPR Discussion Papers 5039, C.E.P.R. Discussion Papers.
  9. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
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  12. Martin Feldstein & Elena Ranguelova & Andrew Samwick, 1999. "The Transition to Investment-Based Social Security when Portfolio Returns and Capital Profitability are Uncertain," NBER Working Papers 7016, National Bureau of Economic Research, Inc.
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  17. Andrew B. Abel, "undated". "The Effects of Investing Social Security Funds in the Stock Market When Fixed Costs Prevent Some Households from Holding Stocks," Rodney L. White Center for Financial Research Working Papers 09-00, Wharton School Rodney L. White Center for Financial Research.
  18. Dirk Krueger & Felix Kubler, 2002. "Intergenerational Risk-Sharing via Social Security when Financial Markets Are Incomplete," American Economic Review, American Economic Association, vol. 92(2), pages 407-410, May.
  19. Henry J. Aaron & John B. Shoven, 1999. "Should the United States Privatize Social Security?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011743 edited by Benjamin M. Friedman.
  20. D'Amato, Marcello & Galasso, Vincenzo, 2002. "Aggregate Risk, Political Constraints and Social Security Design," CEPR Discussion Papers 3330, C.E.P.R. Discussion Papers.
  21. Georges Casamatta, 2003. "The Political Power of the Retirees in a Two-Dimensional Voting Model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(4), pages 571-591, October.
  22. Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Seminar Papers 712, Stockholm University, Institute for International Economic Studies.
  23. Mulligan Casey B & Sala-i-Martin Xavier, 2004. "Political and Economic Forces Sustaining Social Security," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-56, May.
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