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A welfare analysis of social security in a dynastic framework

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  • Luisa Fuster
  • Ayse Imrohoroglu
  • Selahattin Imrohoroglu

Abstract

In this article, we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability. Contrary to previous research, our results indicate that steady-state welfare increases with social security for most households, although by very different amounts. This result is mainly due to two factors. First, the presence of two-sided altruism significantly mitigates the crowding out effect of unfunded social security. Second, ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security. Copyright 2003 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Luisa Fuster & Ayse Imrohoroglu & Selahattin Imrohoroglu, 2003. "A welfare analysis of social security in a dynastic framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1247-1274, November.
    • Handle: RePEc:ier:iecrev:v:44:y:2003:i:4:p:1247-1274
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