IDEAS home Printed from
   My bibliography  Save this paper

Pension Reform and Endogenous Borrowing Constraints


  • Juan Rojas
  • Carlos Urrutia


In this paper we study the quantitative properties of alternative social security regimes in a large overlapping generations model where households face uninsurable idiosyncratic income shocks. We study this issue in two model economies. The first is the standard one characterized by exogenous borrowing constraints. In the second one, because of the lack of commitment, these constraints are endogenously determined by the incentives to default on previous debts. We find that when the borrowing constraints are exogenous, changing the social security replacement rate from 44% to 0% increases the capital-output ratio and the saving rate by 44.3% in line with the predictions of quantitative OLG models without population growth. In contrast, when the borrowing constraints are endogenous, such policy change would increase the aggregate capital stock and the saving rate by 25%. The reason is that although without social security households save more for retirement and for precautionary reasons in order to insure against income risk, the magnitude of the latter is reduced since the incentives to default on previous debts are lower and consequently households face more relaxed borrowing limits

Suggested Citation

  • Juan Rojas & Carlos Urrutia, 2004. "Pension Reform and Endogenous Borrowing Constraints," 2004 Meeting Papers 413, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:413

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    social security; incomplete markets; endogenous borrowing constraints;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed004:413. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.