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Social Security, Growth and Welfare in OLG Economies

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  • Neil Bruce
  • Stephen J. Turnovsky

Abstract

We examine the impact of a stylized pay-as-you-go (PAYGO) Social Security program in an economy of overlapping generations with equilibrium growth. We adopt realistic mortality and other demographic assumptions and allow for the presence or absence of full life annuities. In all cases we find that steady state economies with PAYGO Social Security programs grow more slowly than those without. Also, we find that, for steady state economies having the same wage rate at the current time, initial all-inclusive wealth and lifetime expected utility are lower for households newly entering the economy with Social Security, and for all households subsequent. Growth and welfare are lower in economies without annuities, but the quantitative impact depends on how the financial wealth of decedents is distributed across the surviving population. With or without annuities, the presence of a PAYGO Social Security program reduces growth and welfare.

Suggested Citation

  • Neil Bruce & Stephen J. Turnovsky, 2012. "Social Security, Growth and Welfare in OLG Economies," Working Papers UWEC-2012-03, University of Washington, Department of Economics.
    • Handle: RePEc:udb:wpaper:uwec-2012-03
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