The Risk Premium for Equity: Implications for Clinton's Proposed Diversification of the Social Security Trust Fund

Simon Grant () and John Quiggin ()

ANUCBE School of Economics Working Papers from Australian National University, College of Business and Economics, School of Economics

Abstract: Any meaningful reform of the US Social Security system must deal with the system's current outstanding accumulated unfunded liabilities. The authors model these as a once-off financial liability payable 'tomorrow'. They show that if the equity premium puzzle arises from adverse selection problems which prevent risk-spreading through market transactions, then the government can improve the ex ante welfare of the young today by acquiring equity today to assist in financing its obligations to meet social security payments to the old tomorrow.

Keywords: SOCIAL SECURITY; EQUITY; FISCAL POLICY (search for similar items in EconPapers)
JEL-codes: E62 H55 (search for similar items in EconPapers)
Date: Written

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Working Paper: The Risk Premium for Equity: Implications for Clinton's Proposed Diversification of the Social Security Trust Fund (1999)
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Persistent link: http://EconPapers.repec.org/RePEc:acb:cbeeco:368

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