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Elimination of Social Security in a Dynastic Framework

  • Selahattin Imrohoroglu
  • Aise Imrohoroglu

Much of the existing literature on social security has taken the extreme assumption that individuals have little or no altruism; this paper takes an opposite assumption that there is full two-sided altruism. When households insure members that belong to the same family line, privatizing social security can gain public support. In our benchmark model calibrated to the U.S. economy, privatization without compensation is favoured by 52% of the population. If social security participants are fully compensated for their contributions, and the transition to privatization is financed by a combination of debt and a consumption tax, 58% experience a welfare gain. These gains and the resulting public support for social security reform depend critically on a flexible labour market. If the labour supply elasticity is low, then support for privatization disappears. Copyright 2007, Wiley-Blackwell.

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Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 928.

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Date of creation: 2005
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Handle: RePEc:red:sed005:928
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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