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Aggregate risk and social security in the United States

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  • Bagchi, Shantanu

Abstract

How does aggregate (business-cycle) risk affect the insurance role of an unfunded public pension program? This paper uses a stylized overlapping-generations model to examine this question. In this model, Social Security provides partial insurance against inter- and intra-generational risks that remain uninsured due to incomplete markets. I find that aggregate risk amplifies both the macroeconomic and welfare effects of downsizing Social Security in this environment. Furthermore, the persistence of the aggregate shock process and the progressivity of Social Security’s benefit-earnings rule appear to be two key determinants of this effect.

Suggested Citation

  • Bagchi, Shantanu, 2026. "Aggregate risk and social security in the United States," Economic Modelling, Elsevier, vol. 161(C).
    • Handle: RePEc:eee:ecmode:v:161:y:2026:i:c:s0264999326001744
    DOI: 10.1016/j.econmod.2026.107645
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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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