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Macroeconomic implications of switching the social security trust fund towards a greater investment in equities

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  • PESTIEAU, Pierre
  • POSSEN, Uri

Abstract

This paper shows that shifting the portfolio allocation of the social security trust fund towards more equity investment, ceteris paribus,reduces the aggregate capital stock asw ell asthe average consumption level of all individuals except the poor retirees who receive an increase but at the cost of a large increase in uncertainty. If a larger capital stock is desired, reducing the supply of publicly supplied goods is the most effective tool. That change also increases the average private consumption of all the young and the wealthy retirees although it does reduce the average consumption and uncertainty of the old non-savers.

Suggested Citation

  • PESTIEAU, Pierre & POSSEN, Uri, 2000. "Macroeconomic implications of switching the social security trust fund towards a greater investment in equities," LIDAM Discussion Papers CORE 2000035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2000035
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2000.html
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    References listed on IDEAS

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    1. Michael Dotsey, 1997. "Investing in equities: can it help social security?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 49-70.
    2. 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, December.
    3. 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.
    4. Pestieau, Pierre & Possen, Uri M., 2000. "Investing Social Security in the Equity Market. Does It Make a Difference?," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(1), pages 41-58, March.
    5. Laurence J. Kotlikoff, 1998. "Simulating the Privatization of Social Security in General Equilibrium," NBER Chapters, in: Privatizing Social Security, pages 265-311, National Bureau of Economic Research, Inc.
    6. Uri Possen & Steven Slutsky, 1980. "Public-Private Consumption Tradeoffs and the Balanced Budget Multiplier," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(4), pages 679-702.
    7. PESTIEAU, Pierre & POSSEN, Uri M., 2000. "Investing social security in the equity market. Does it make a difference?," LIDAM Reprints CORE 1444, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Martin Feldstein, 1998. "Privatizing Social Security," NBER Books, National Bureau of Economic Research, Inc, number feld98-1, July.
    9. Martin Feldstein & Andrew Samwick, 1998. "The Transition Path in Privatizing Social Security," NBER Chapters, in: Privatizing Social Security, pages 215-264, National Bureau of Economic Research, Inc.
    10. Pestieau, Pierre & Possen, Uri M., 2000. "Investing Social Security in the Equity Market. Does it Make a Difference?," National Tax Journal, National Tax Association, vol. 53(n. 1), pages 41-58, March.
    11. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
    12. POSSEN, Uri & SLUTSKY, Steven, 1980. "Public-private consumption tradeoffs and the balanced budget multiplier," LIDAM Reprints CORE 430, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    2. Hessami, Zohal, 2011. "What determines trust in international organizations? An empirical analysis for the IMF, the World Bank, and the WTO," MPRA Paper 34550, University Library of Munich, Germany.

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