Pareto Improving Social Security Reform when Financial Markets Are Incomplete

Dirk Krüger and Felix Kubler ()
Authors registered in the RePEc Author Service: Dirk Krueger ()

No 5039, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 labour 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.

Keywords: aggregate fluctuations; incomplete markets; intergenerational risk sharing; social security reform (search for similar items in EconPapers)
JEL-codes: D58 D91 E62 H31 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fmk, nep-mac and nep-pbe
Date: 2005-05
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Related works:
Journal Article: Pareto-Improving Social Security Reform when Financial Markets are Incomplete!? (2006)
Working Paper: Pareto Improving Social Security Reform when Financial Markets are Incomplete!? (2005)
Working Paper: Pareto Improving Social Security Reform when Financial Markets are Incomplete? (2003)
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