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Social Security and Trust Fund Management

  • Takashi Oshio
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    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, given an aging population, a trust fund in some form could 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, using the trust fund as a buffer for demographic shocks 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.

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    File URL: http://www.nber.org/papers/w10444.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10444.

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    Date of creation: Apr 2004
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    Publication status: published as Oshio, Takashi. "Social Security And Trust Fund Management," Journal of the Japanese and International Economies, 2004, v18(4,Dec), 528-550.
    Handle: RePEc:nbr:nberwo:10444
    Note: AG PE
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    1. Henning Bohn, 1999. "Social Security and Demographic Uncertainty: The Risk Sharing Properties of Alternative Policies," NBER Working Papers 7030, National Bureau of Economic Research, Inc.
    2. Andrew B. Abel, 2001. "The Social Security Trust Fund, the Riskless Interest Rate, and Capital Accumulation," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 153-202 National Bureau of Economic Research, Inc.
    3. Burbidge, John B., 1983. "Social security and savings plans in overlapping-generations models," Journal of Public Economics, Elsevier, vol. 21(1), pages 79-92, June.
    4. Kent Smetters, 2003. "Is the Social Security Trust Fund Worth Anything?," NBER Working Papers 9845, National Bureau of Economic Research, Inc.
    5. Smith, Alasdair, 1982. "Intergenerational transfers as social insurance," Journal of Public Economics, Elsevier, vol. 19(1), pages 97-106, October.
    6. John B. Shoven, 2000. "Administrative Aspects of Investment-Based Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number shov00-1, October.
    7. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-26, Sept./Oct.
    8. Kato, Ryuta, 1998. "Transition to an Aging Japan: Public Pension, Savings, and Capital Taxation," Journal of the Japanese and International Economies, Elsevier, vol. 12(3), pages 204-231, September.
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