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Investing Social Security in the Equity Market. Does It Make a Difference?

Listed author(s):
  • Pestieau, Pierre
  • Possen, Uri M.

We show that investing social security in the equity market makes no difference under three assumptions: (1) the transition generation is compensated by public borrowing, (2) the benefit rule is unchanged, and (3) individuals’ portfolio choices are unconstrained. We also show that when these assumptions do not hold, the reform is not neutral; it can be Pareto improving but it can also be Pareto worsening. This depends particularly on the way portfolio choices are constrained. For example, if a majority of households are kept away from the equity market because of liquidity constraints, investing part of their contributions in the equity market can be Pareto improving.

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Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 53 (2000)
Issue (Month): 1 (March)
Pages: 41-58

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Handle: RePEc:ntj:journl:v:53:y:2000:i:1:p:41-58
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  1. Henry J. Aaron & John B. Shoven, 1999. "Should the United States Privatize Social Security?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011743 edited by Benjamin M. Friedman, January.
  2. Pascal Belan & Pierre Pestieau, 1999. "Privatizing Social Security: A Critical Assessment," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 24(1), pages 114-130, January.
  3. Peter A. Diamond, 1997. "Macroeconomics Aspects of Social Security Reform," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 1-88.
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