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Social Security and Trust Fund Management

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  • Oshio, Takashi

Abstract

In this paper we investigate why and to what extent the government should have a social security trust fund, and how it should manage the fund in the face of demographic shocks, based on a simple overlapping-generations model. We show that the government should have a trust fund in some form, given an aging population, to achieve the (modified) golden rule or to offset the negative income effect of a PAYGO system. Besides, in a closed economy where factor-prices effects dominate, it is not advisable to use the trust fund as a buffer for demographic shocks, because it could lead to a widening of intergenerational inequality. We also the discuss policy implications of our analysis on the social security reform debate in Japan, including the fixed tax method and the use of the trust fund in the face of a rapidly aging population.

Suggested Citation

  • Oshio, Takashi, 2004. "Social Security and Trust Fund Management," Discussion Paper 192, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:piedp1:192
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/14320/1/pie_dp192.pdf
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    Cited by:

    1. Olivia S. Mitchell & John Piggott & Cagri Kumru, 2008. "Managing Public Investment Funds: Best Practices and New Challenges," NBER Working Papers 14078, National Bureau of Economic Research, Inc.
    2. Gahramanov, Emin & Tang, Xueli, 2013. "A mixed blessing of lifespan heterogeneity," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 142-153.

    More about this item

    Keywords

    trust fund; social security; intergenerational equity;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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