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A welfare analysis of social security in a dynastic framework

Luisa Fuster (), Ayse Imrohoroglu () and Selahattin Imrohoroglu ()

International Economic Review, 2003, vol. 44, issue 4, 1247-1274

Abstract: In this article, we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability. Contrary to previous research, our results indicate that steady-state welfare increases with social security for most households, although by very different amounts. This result is mainly due to two factors. First, the presence of two-sided altruism significantly mitigates the crowding out effect of unfunded social security. Second, ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security. Copyright 2003 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2003
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