Demand for Private Annuities and Social Security: Consequences to Individual Wealth

Miguel Sanchez-Romero ()

No 2006/07, Working Papers in Economic Theory from Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History)

Abstract: This paper focuses on comparing public and private individual wealth over the life-cycle, when individuals face an uncertain length of life. We also analyze how a fully funded and actuarially fair Social Security affects the desire to annuitize private wealth. Within this framework, we find that a social security system can contribute to reaching a higher national wealth, even when the economy is composed of selfish individuals. Thus, by means of some simulations we obtain the result that a payroll tax of 6 percent increases individual wealth up to 17 percent. This increment, however, is obtained under the assumption that insurance companies offer fair annuities. On the contrary, under an unfair private annuity market, individual wealth can decrease around 10 percent for the same payroll tax.

Keywords: Actuarially Fair Funded Social Security; Crowding Out Effect; Public and Private Wealth Pro-files (search for similar items in EconPapers)
JEL-codes: D01 D31 D81 D91 G11 H31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: Written
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Persistent link: http://EconPapers.repec.org/RePEc:uam:wpaper:200607

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