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

  • PESTIEAU, Pierre
  • POSSEN, Uri

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.

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File URL: http://alfresco.uclouvain.be/alfresco/download/attach/workspace/SpacesStore/11d937fa-cb8e-4e6f-aa5a-5b6dc074d099/coredp_2000_35.pdf
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2000035.

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Date of creation: 00 Jul 2000
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Handle: RePEc:cor:louvco:2000035
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  1. Pascal Belan & Pierre Pestieau, 1999. "Privatizing Social Security: A Critical Assessment," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 24(1), pages 114-130, January.
  2. Kocherlakota, N., 1995. "The Equity Premium: It's Still a Puzzle," Working Papers 95-05, University of Iowa, Department of Economics.
  3. 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, June.
  4. 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.
  5. Possen, Uri & Slutsky, Steven, 1980. "Public-Private Consumption Tradeoffs and the Balanced Budget Multiplier," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 679-702, December.
  6. Michael Dotsey, 1997. "Investing in equities: can it help social security?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 49-70.
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