Wealth Distribution and Social Security Reform in an Economy with Entrepreneurs

This paper analyzes the effects of removing the unfunded social security in an economy where entrepreneurs play a critical role in replicating the dispersion of wealth observed in the U.S. data. The quantitative findings reveal that the wealth Gini falls from 0 : 804 to 0 : 521 indicating a more equal distribution of wealth after privatization. Unlike the models without entrepreneurs, the fall in entrepreneurial profits further contributes to the reduction in the wealth inequality. The wealth distribution among the entrepreneurs is initially more equal than the one among the non-entrepreneurs, and privatization leads to exactly the opposite case in the long run. Furthermore, the occupational composition is reported to change in favor of entrepreneurship. Even though the fraction of entrepreneurs increases by 29%, their share in total wealth and income falls by 39%, and 7%, respectively. Finally, the increase in aggregate consumption as a percentage of the rise in aggregate output is always significantly lower with entrepreneurs than without them underlining the importance of additional saving motive introduced by the entrepreneurship.