Equilibria with Social Security
We model pay-as-you-go (PAYG) social security systems as the outcome of majority voting within a standard OLG model with production and an exogenous population growth rate. At each point in time individuals work, save, consume and invest by taking the social security policy as given. The latter consists of a tax on current wages transferred to elderly people. 'When they vote, individuals have to make two choices: if they want to keep the commitment made by the previous generation by paying the elderly the promised amount of benefits, and which amount they want paid to themselves next period. We show that when the growth rate of population is high enough compared to the productivity of capital there exists an equilibrium where PAYG pensions are voted into existence and maintained. PAYG systems are kept even when everybody knows that they will surely be abandoned, and that some generation will pay and not be paid back. We characterize the steady state and dynamic properties of these equilibria and study their welfare properties. Equilibria achieved by voting are typically inefficient; however, they may be so due to over accumulation, as well as, in other cases, due to under accumulation. On the other hand, the efficient steady states turn out to be dynamically unstable: so we are presenting an unpleasant alternative for policy making.
|Date of creation:||01 Nov 1994|
|Contact details of provider:|| Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)|
Fax: +32 10474304
Web page: http://www.uclouvain.be/core
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tabellini, Guido, 2000.
" A Positive Theory of Social Security,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 102(3), pages 523-545, June.
- Tabellini, Guido, 1990. "A Positive Theory of Social Security," CEPR Discussion Papers 394, C.E.P.R. Discussion Papers.
- Guido Tabellini, 1990. "A Positive Theory of Social Security," NBER Working Papers 3272, National Bureau of Economic Research, Inc.
- Tabellini, Guido, 1991. "The Politics of Intergenerational Redistribution," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 335-357, April.
- Guido Tabellini, 1989. "The Politics of Intergenerational Redistribution," NBER Working Papers 3058, National Bureau of Economic Research, Inc.
- Laurence J. Kotlikoff & Daniel E. Smith, 1983. "Introduction to "Pensions in the American Economy"," NBER Chapters, in: Pensions in the American Economy, pages 1-19 National Bureau of Economic Research, Inc.
- Kotlikoff, Laurence J. & Smith, Daniel E., 1984. "Pensions in the American Economy," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226451466.
- Laurence J. Kotlikoff & Daniel E. Smith, 1983. "Pensions in the American Economy," NBER Books, National Bureau of Economic Research, Inc, number kotl83-1, March.
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834.
- Becker, Gary S & Murphy, Kevin M, 1988. "The Family and the State," Journal of Law and Economics, University of Chicago Press, vol. 31(1), pages 1-18, April.
- Gary S. Becker & Kevin M. Murphy, "undated". "The Family and the State," University of Chicago - Population Research Center 87-15, Chicago - Population Research Center.
- H. Verbon, 1987. "The rise and evolution of public pension systems," Public Choice, Springer, vol. 52(1), pages 75-100, January.
- Laurence J. Kotlikoff, 1987. "Justifying Public Provision of Social Security," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(4), pages 674-696.
- Samuelson, Paul A, 1975. "Optimum Social Security in a Life-Cycle Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(3), pages 539-544, October. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:cor:louvco:1994060. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.