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Uncertain Retirement and the Effects of Social Insurance on Savings, Wealth, and Welfare

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  • Turnovsky, Stephen J.
  • Bruce, Neil

Abstract

We construct a Blanchard-style overlapping generations model consisting of long-lived individuals who have uninsurable idiosyncratic risk resulting from uncertain retirement periods and medical costs in retirement. Without social insurance, such individuals must save for these eventualities. We examine the impact of pay-as-you-go social insurance policies (public pensions and medicare coverage) on individual and aggregate consumption, saving, and wealth levels as well as wealth distribution. We also derive expressions for optimal (Pareto improving) social insurance policies.

Suggested Citation

  • Turnovsky, Stephen J. & Bruce, Neil, 2007. "Uncertain Retirement and the Effects of Social Insurance on Savings, Wealth, and Welfare," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 1, pages 1-41.
  • Handle: RePEc:zbw:ifweej:5581
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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2007-2
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    References listed on IDEAS

    as
    1. Soares, Jorge, 2005. "Social Security Evaluation: A Critique," Macroeconomic Dynamics, Cambridge University Press, vol. 9(01), pages 57-97, February.
    2. Steven J. Haider & Melvin Stephens, 2007. "Is There a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Expectations," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 247-264, May.
    3. 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 467-467.
    4. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 659-684.
    5. Jagadeesh Gokhale & Laurence J. Kotlikoff, 2002. "The Impact of Social Security and Other Factors on the Distribution of Wealth," NBER Chapters,in: The Distributional Aspects of Social Security and Social Security Reform, pages 85-114 National Bureau of Economic Research, Inc.
    6. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
    7. 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.
    8. Diamond, Peter A & Mirrlees, James A, 1986. " Payroll-Tax Financed Social Insurance with Variable Retirement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 25-50.
    9. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-247, April.
    10. Joskow, Paul L & Rozanski, George A, 1979. "The Effects of Learning by Doing on Nuclear Plant Operating Reliability," The Review of Economics and Statistics, MIT Press, pages 161-168.
    11. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, pages 295-336.
    12. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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