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Optimal pay-as-you-go social security when retirement is endogenous and labor productivity depreciates

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  • Miyazaki, Koichi

Abstract

This paper considers an overlapping-generations model with pay-as-you-go social security and retirement decision making by an old agent. In addition, the paper assumes that labor productivity depreciates. Under this setting, socially optimal allocations are examined. The first-best allocation is an allocation that maximizes welfare when a social planner distributes resources and forces an old agent to work and retire as she wants. The second-best allocation is an allocation that maximizes welfare when she can use only pay-as-you-go social security in a decentralized economy. The paper finds a range of an old agent's labor productivity such that the first-best allocation is achieved in the decentralized economy. This differs from the finding in Michel and Pestieau (2013) that the first-best allocation cannot be achieved in the decentralized economy.

Suggested Citation

  • Miyazaki, Koichi, 2014. "Optimal pay-as-you-go social security when retirement is endogenous and labor productivity depreciates," MPRA Paper 61166, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:61166
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    References listed on IDEAS

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    1. Philippe Michel & Pierre Pestieau, 2013. "Social Security And Early Retirement In An Overlapping-Generations Growth Model," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 723-737, November.
    2. Hu, Sheng Cheng, 1979. "Social Security, the Supply of Labor, and Capital Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 274-283, June.
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    5. Mizuno, Masakatsu & Yakita, Akira, 2013. "Elderly labor supply and fertility decisions in aging-population economies," Economics Letters, Elsevier, vol. 121(3), pages 395-399.
    6. Sala-i-Martin, Xavier X, 1996. "A Positive Theory of Social Security," Journal of Economic Growth, Springer, vol. 1(2), pages 277-304, June.
    7. Rosa Aísa & Fernando Pueyo & Marcos Sanso, 2012. "Life expectancy and labor supply of the elderly," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(2), pages 545-568, January.
    8. Barbie, Martin & Hagedorn, Marcus & Kaul, Ashok, 2007. "On the interaction between risk sharing and capital accumulation in a stochastic OLG model with production," Journal of Economic Theory, Elsevier, vol. 137(1), pages 568-579, November.
    9. Miyazaki, Koichi, 2014. "The effects of the raising-the-official-pension-age policy in an overlapping generations economy," Economics Letters, Elsevier, vol. 123(3), pages 329-332.
    10. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, January-J.
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    12. Chattopadhyay, Subir, 2006. "Optimality in stochastic OLG models: Theory for tests," Journal of Economic Theory, Elsevier, vol. 131(1), pages 282-294, November.
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    Cited by:

    1. Hirono, Makoto & Mino, Kazuo, 2019. "Pension, Retirement, and Growth in the Presence Heterogeneous Elderly," MPRA Paper 98096, University Library of Munich, Germany.
    2. Chen Hung-Ju & Miyazaki Koichi, 2018. "Fertility and labor supply of the old with pay-as-you-go pension and child allowances," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(1), pages 1-19, January.
    3. Chen, Hung-Ju, 2016. "Fertility, Retirement Age, and PAYG Pensions," MPRA Paper 69819, University Library of Munich, Germany.
    4. Hirono, Makoto & Mino, Kazuo, 2020. "Pension Reforms, Population Aging, and Retirement Decision of the Elderly in a Neoclassical Growth Model," MPRA Paper 102467, University Library of Munich, Germany.
    5. Chen, Hung-Ju, 2015. "Fertility and PAYG Pensions in an Overlapping Generations Model with Endogenous Retirement," MPRA Paper 68020, University Library of Munich, Germany.

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    Keywords

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    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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