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Capital-skill complementarity and the redistributive effects of Social Security Reform

  • Casarico, Alessandra
  • Devillanova, Carlo

This paper analyses the general equilibrium implications of reforming pay-as-you-go pension systems in an economy with heterogeneous agents, human capital investment and capital-skill complementarity. It shows that increasing funding, by raising savings, delivers in the long run higher physical and human capital and therefore higher output, but also higher across-group wage and income inequality. It also shows that the general equilibrium effects induced by this reform affect groups' sizes in a way that the higher across-group inequality generated by more funding goes with a larger share of the population against redistribution.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 3-4 (April)
Pages: 672-683

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:3-4:p:672-683
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  1. Laurence J. Kotlikoff & Kent Smetters & Jan Walliser, 2002. "Distributional Effects in a General Equilibrium Analysis of Social Security," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 327-370 National Bureau of Economic Research, Inc.
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  3. Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-68, November.
  4. Theo Leers & Lex Meijdam & Harrie A. A Verbon, 2001. "The Politics of Pension Reform under Ageing," CESifo Working Paper Series 521, CESifo Group Munich.
  5. Sinn, Hans-Werner & Uebelmesser, Silke, 2003. "Pensions and the path to gerontocracy in Germany," European Journal of Political Economy, Elsevier, vol. 19(1), pages 153-158, March.
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  7. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
  8. Martin Feldstein, 2005. "Rethinking Social Insurance," NBER Working Papers 11250, National Bureau of Economic Research, Inc.
  9. Flug, K. & Hercowitz, Z., 1998. "Equipment Investment and the Relative Demand for Skilled Labour: International Evidence," Papers 05-98, Tel Aviv.
  10. 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.
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  12. CASAMATTA, Georges & CREMER , Helmuth & PESTIEAU, Pierre, . "The political economy of social security," CORE Discussion Papers RP 1475, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  17. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  18. Eswar Prasad, 1994. "The Canadian Labor Market: Developments, Prospects, and Policy," IMF Working Papers 94/97, International Monetary Fund.
  19. Homburg, Stefan, 2014. "The Efficiency of Unfunded Pension Schemes," Hannover Economic Papers (HEP) dp-523, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  20. Jonathan Gruber & David A. Wise, 2002. "Different Approaches to Pension Reform from an Economic Point of View," NBER Chapters, in: Social Security Pension Reform in Europe, pages 49-84 National Bureau of Economic Research, Inc.
  21. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
  22. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
  23. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  24. Casarico, Alessandra, 1998. "Pension Reform and Economic Performance under Imperfect Capital Markets," Economic Journal, Royal Economic Society, vol. 108(447), pages 344-62, March.
  25. John Y. Campbell & Martin Feldstein, 2001. "Risk Aspects of Investment-Based Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number camp01-1, December.
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  27. Stokey, Nancy L, 1996. " Free Trade, Factor Returns, and Factor Accumulation," Journal of Economic Growth, Springer, vol. 1(4), pages 421-47, December.
  28. Steven A. Sass & Robert K. Triest, 1997. "Social Security reform: links to saving, investment and growth," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 41(Jun).
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