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Social security reform : the capital accumulation and intergenerational distribution effect

  • Arrau, Patricio
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    Reforming the social security system has received increasing attention in recent years. This paper studies a switch from an unfunded defined-benefit system (pay-as-you-go) to a fully-funded defined-contribution system in a stable demographic environment. While the former finances current pensions with current social security taxes which are not perceived as linked to the benefits, the latter finances the pensions out of the funds accumulated in special accounts for retirement purposes. Therefore, the contributions are directly linked to the benefits. The paper describes the theoretical model and discusses the data for the calibration. The model is calibrated to resemble the Mexican economy and indicates how the reform is actually carried out and the alternatives of the government to finance the transition. The simulation results are presented and the main results are summarized.

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    File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1990/10/01/000009265_3960929233856/Rendered/PDF/multi_page.pdf
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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 512.

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    Date of creation: 31 Oct 1990
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    Handle: RePEc:wbk:wbrwps:512
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    1. Michael J. Boskin & Laurence J. Kotlikoff & Douglas J. Puffert & John B. Shoven, 1987. "Social Security: A Financial Appraisal Across and Within Generations," NBER Working Papers 1891, National Bureau of Economic Research, Inc.
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