General-equilibrium effects of privatisation: the missing piece in social security reform

B. van Groezen, Lex Meijdam () and H. Verbon
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H. Verbon: Tilburg University, Center for Economic Research

No 24, Discussion Paper from Tilburg University, Center for Economic Research

Abstract: This paper analyses the effects of reducing unfunded social security in a closed economy that consists of a service sector and a commodity sector. It is shown that if old agents mainly demand labour intensive services, a modest decrease of the pay-as-you-go pension scheme still raises long-run utility as long as the economy is dynamically efficient. However, entirely privatising the social security system will sooner lead to dynamic inefficiency than in the conventional one-sector model, leading to a different conclusion about the desirability of unfunded pensions.

Keywords: overlapping; generations (search for similar items in EconPapers)
JEL-codes: D91 E60 H55 J14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: Written 2002
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