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Quantifying the risk-sharing welfare gains of social security

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  • Olovsson, Conny

Abstract

The welfare effects of intergenerational risk sharing through a pay-as-you-go social security system that is efficiently indexed to wages or interest rates are quantified. Comparing steady states, there are large welfare gains of being born into an economy with efficient risk sharing as compared to the current U.S. system. Efficient policy involves an increasingly risky net of tax income over the life cycle. When adjustment to steady state is taken into account, the welfare gains largely turn negative. The results are also compared and contrasted to the first best allocation.

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  • Olovsson, Conny, 2010. "Quantifying the risk-sharing welfare gains of social security," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 364-375, April.
  • Handle: RePEc:eee:moneco:v:57:y:2010:i:3:p:364-375
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    References listed on IDEAS

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    Cited by:

    1. Gottardi, Piero & Kubler, Felix, 2011. "Social security and risk sharing," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1078-1106, May.
    2. Thomas Schelkle, 2012. "Mortgage Default during the U.S. Mortgage Crisis," 2012 Meeting Papers 751, Society for Economic Dynamics.
    3. Hatcher, Michael, 2013. "The Inflation Risk Premium on Government Debt in an Overlapping Generations Model," SIRE Discussion Papers 2013-81, Scottish Institute for Research in Economics (SIRE).
    4. Yvonne Adema & Jan Bonenkamp & Lex Meijdam, 2011. "Retirement Flexibility and Portfolio Choice in General Equilibrium," Tinbergen Institute Discussion Papers 11-038/2/DSF13, Tinbergen Institute.
    5. Adema, Y. & Bonenkamp, J. & Meijdam, A.C., 2011. "Retirement Flexibility and Portfolio Choice," Discussion Paper 2011-077, Tilburg University, Center for Economic Research.
    6. Echevarría Olave, Cruz Ángel & Iza Padilla, María Amaya, 2013. "Income Taxation and Growth in an OLG Economy: Does Aggregate Uncertainty Play any Role?," DFAEII Working Papers DFAEII;2013-06, University of the Basque Country - Department of Foundations of Economic Analysis II.
    7. Hillebrand, Marten, 2012. "On the optimal size of Social Security in the presence of a stock market," Journal of Mathematical Economics, Elsevier, vol. 48(1), pages 26-38.
    8. Conny Olovsson, 2014. "How Does a Pay-as-you-go System Affect Asset Returns and the Equity Premium?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 131-149, January.
    9. Peterman, William B. & Sommer, Kamila, 2014. "How Well Did Social Security Mitigate the Effects of the Great Recession?," Finance and Economics Discussion Series 2014-13, Board of Governors of the Federal Reserve System (U.S.).
    10. Harenberg, Daniel & Ludwig, Alexander, 2014. "Social Security in an Analytically Tractable Overlapping Generations Model with Aggregate and Idiosyncratic Risk," MEA discussion paper series 201413, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    11. Fehr, Hans, 2016. "CGE modeling social security reforms," Journal of Policy Modeling, Elsevier, vol. 38(3), pages 475-494.
    12. Daniel Harenberg & Ludwig, Alexander, 2015. "Idiosyncratic Risk, Aggregate Risk, and the Welfare Effects of Social Security," MEA discussion paper series 201403, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    13. Daniel Harenberg & Alexander Ludwig, "undated". "Social Security and the Interactions Between Aggregate and Idiosyncratic Risk," Working Papers ETH-RC-14-002, ETH Zurich, Chair of Systems Design.
    14. repec:eee:hapoch:v1_311 is not listed on IDEAS
    15. Daniel Harenberg & Alexander Ludwig, 2015. "Social security in an analytically tractable overlapping generations model with aggregate and idiosyncratic risks," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(4), pages 579-603, August.
    16. Roel Beetsma & Ward Romp, 2013. "Participation Constraints in Pension Systems," Tinbergen Institute Discussion Papers 13-149/VI, Tinbergen Institute.
    17. Michael, Hatcher, 2013. "Aggregate and welfare effects of long run inflation risk under inflation and price-level targeting," SIRE Discussion Papers 2013-19, Scottish Institute for Research in Economics (SIRE).
    18. Niklas Potrafke, 2007. "Social Security in Germany: A Prey of Political Opportunism?," Discussion Papers of DIW Berlin 677, DIW Berlin, German Institute for Economic Research.
    19. Echevarría, Cruz A., 2012. "Income tax progressivity, physical capital, aggregate uncertainty and long-run growth in an OLG economy," Journal of Macroeconomics, Elsevier, pages 955-974.
    20. Beaudry, Paul & Galizia, Dana & Portier, Franck, 2016. "Putting the Cycle Back into Business Cycle Analysis," CEPR Discussion Papers 11647, C.E.P.R. Discussion Papers.

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