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Krueger, Dirk, and
Felix Kubler. 2006. "Pareto-Improving Social Security Reform when Financial Markets are Incomplete!?."
,
96(3): 737-755.
Show Article Details
DOI: 10.1257/aer.96.3.737
Abstract:This paper studies an overlapping generations model with stochastic production
and incomplete markets to assess whether the introduction of an unfunded social
security system leads to a Pareto improvement. When returns to capital and wages
are imperfectly correlated, a system that endows retired households with claims to
labor income enhances the sharing of aggregate risk between generations. Our
quantitative analysis shows that, abstracting from the capital crowding-out effect,
the introduction of social security represents a Pareto-improving reform, even when
the economy is dynamically efficient. However, the severity of the crowding-out
effect in general equilibrium tends to overturn these gains. (JEL D58, D91, E62,
H31, H55)
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Authors:
Krueger, Dirk
Kubler, Felix
JEL Classifications:
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None
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