Social Security is NOT a Substitute for Annuity Markets

Frank Caliendo, Nick Guo () and Roozbeh Hosseini ()

Review of Economic Dynamics, 2014, vol. 17, issue 4, 739-755

Abstract: Common wisdom suggests that a fully-funded actuarially fair social security system should increase welfare when households face longevity risk and annuity markets are missing. This wisdom is based on the observation that social security pays benefits as life annuities and therefore appears to complete the market. However, we argue that common wisdom is based on a benefit-only analysis that ignores a fundamental cost---social security crowds out the bequests that households leave (and receive) in general equilibrium. We conduct a general equilibrium cost-benefit analysis of the longevity insurance role of social security, and we show that under certain conditions this decline in bequest income offsets any possible gains from access to a public annuity pool. We abstract from distortions to national income and factor prices to show that the equilibrium bequest channel is all that is needed to reach this conclusion. (Copyright: Elsevier)

Keywords: Annuities; Uninsurable longevity risk; Social security; General equilibrium; Bequest income (search for similar items in EconPapers)
JEL-codes: E6 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2014.01.005
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Social Security is NOT a Substitute for Annuity Markets" (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:13-126

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2014.01.005

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().