The Effects of Investing Social Security Funds in the Stock Market When Fixed Costs Prevent Some Households from Holding Stocks

Andrew Abel

No 7739, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: With fixed costs of participating in the stock market, consumers with high income will participate in the stock market, but consumers with lower income will not participate. If a fully-funded defined-contribution social security system tries to exploit the equity premium by selling a dollar of bonds per capita and buying a dollar of equity per capita, consumers who save but do not participate in the stock market will increase their consumption, thereby reducing saving and capital accumulation. Calibration of a general equilibrium model indicates that this policy could reduce the aggregate capital stock substantially, by about 50 cents per capita.

JEL-codes: H55 (search for similar items in EconPapers)
Date: 2000-06
New Economics Papers: this item is included in nep-dge
Note: AP EFG PE
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Citations: View citations in EconPapers (10)

Published as Andrew B. Abel, 2001. "The Effects of Investing Social Security Funds in the Stock Market When Fixed Cobsts Prevent Some Households from Holding Stocks," American Economic Review, American Economic Association, vol. 91(1), pages 128-148, March.

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Journal Article: The Effects of Investing Social Security Funds in the Stock Market When Fixed Costs Prevent Some Households from Holding Stocks (2001)
Working Paper: The Effects of Investing Social Security Funds in the Stock Market When Fixed Costs Prevent Some Households from Holding Stocks
Working Paper: The Effects of Investing Social Security Funds in the Stock Market When Fixed Costs Prevent Some Households from Holding Stocks
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