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Abel, Andrew B. 2001. "The Effects of Investing Social Security Funds in the Stock Market When Fixed Costs Prevent Some Households from Holding Stocks."
,
91(1): 128-148.
Show Article Details
DOI: 10.1257/aer.91.1.128
Abstract:With fixed costs of participating in the stock market, consumers with high income will participate in the stock market, but consumers with lower income will not participate. If a fully funded defined-contribution Social Security system tries to exploit the equity premium by selling a dollar of bonds per capita and buying a dollar of equity per capita, consumers who save but do not participate in the stock market will increase their consumption, thereby reducing saving and capital accumulation. Calibration of a general-equilibrium model indicates that this policy could reduce the aggregate capital stock substantially, by about 50 cents per capita.
Authors:
Abel, Andrew B. (U PA and NBER)
JEL Classifications:
H55: Social Security and Public Pensions
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
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