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Steady-state welfare effects of social security in a large open economy

  • Friedrich Breyer
  • David Wildasin

The previous welfare-economics literature on intergenerational transfers through unfunded public pension schemes studies either “small open” economies, which can borrow or lend abroad without restriction at constant interest rates, or “closed” economies, in which domestic capital accumulation must be equal to domestic savings. Here we analyze the more realistic “intermediate” case of an economy which is both open and large enough to have an impact on world interest rates. It turns out that even those efficiency results that hold for both “polar” cases do not carry over to large open economies: If a country is a net lender, it can successfully redistribute income away from the non-residents by increasing the public pension program above the “golden-rule” level at which interest and growth rate coincide. Thus one must be careful in interpreting the previous results on the welfare effects of social security. Copyright Springer-Verlag 1993

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File URL: http://hdl.handle.net/10.1007/BF03052290
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Article provided by Springer in its journal Journal of Economics.

Volume (Year): 7 (1993)
Issue (Month): 1 (December)
Pages: 43-49

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Handle: RePEc:kap:jeczfn:v:7:y:1993:i:1:p:43-49
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  1. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  2. Torsten Persson, 1983. "Deficits and Intergenerational Welfare in Open Economies," NBER Working Papers 1083, National Bureau of Economic Research, Inc.
  3. Breyer, Friedrich & Straub, Martin, 1993. "Welfare effects of unfunded pension systems when labor supply is endogenous," Journal of Public Economics, Elsevier, vol. 50(1), pages 77-91, January.
  4. Homburg, Stefan, 2014. "The Efficiency of Unfunded Pension Schemes," Hannover Economic Papers (HEP) dp-523, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  5. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-94, June.
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