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Is Social Security Really Bad For Growth?

  • G. Bellettini
  • C. Berti Ceroni

This paper develops a model of endogenous growth with overlapping generations to investigate the joint determination of social security, public investment and growth in a small open economy. We argue that a pure pay-as-you-go system provides the taxpayers with the incentives to support growth-oriented policies, which increase the future productivity of labor. We find that outcomes characterized by positive levels of intergenerational redistribution, public investment and long run growth can be sustained as subgame-perfect Nash equilibria of an infinitely repeated intergenerational game, if and only if the marginal productivity of public capital is large enough. Furthermore, we show that transfers either comove with public investment and growth or display a non-monotonic relation, where they initially increase along with public investment and growth and then decrease.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 218.

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Date of creation: May 1995
Date of revision:
Handle: RePEc:bol:bodewp:218
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  8. Deborah Roseveare & Willi Leibfritz & Douglas Fore & Eckhard Wurzel, 1996. "Ageing Populations, Pension Systems and Government Budgets: Simulations for 20 OECD Countries," OECD Economics Department Working Papers 168, OECD Publishing.
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  10. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
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  13. Tabellini, Guido, 2000. " A Positive Theory of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 523-45, June.
  14. Rustichini, Aldo & Boldrin, Michele, 1995. "Equilibria with social security," UC3M Working papers. Economics 3903, Universidad Carlos III de Madrid. Departamento de Economía.
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  17. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  18. BOADWAY, Robin W. & WILDASIN, David E., . "A median voter model of social security," CORE Discussion Papers RP 839, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  19. G. Bellettini & C. Berti Ceroni, 1997. "Social Security and Growth: New Empirical Evidence," Working Papers 269, Dipartimento Scienze Economiche, Universita' di Bologna.
  20. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  21. David Alan Aschauer, 1989. "Public investment and productivity growth in the Group of Seven," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 17-25.
  22. Per Krusell & José-Victor Ríos-Rull, 1994. "What Constitutions Promote Capital Accumulation? A Political-Economy Approach," Wallis Working Papers WP1, University of Rochester - Wallis Institute of Political Economy.
  23. Jeffrey D. Sachs, 1989. "Social Conflict and Populist Policies in Latin America," NBER Working Papers 2897, National Bureau of Economic Research, Inc.
  24. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  25. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
  26. Cukierman, Alex & Meltzer, Allan H, 1989. "A Political Theory of Government Debt and Deficits in a Neo-Ricardian Framework," American Economic Review, American Economic Association, vol. 79(4), pages 713-32, September.
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