Hunting the Unobservables for Optimal Social Security

Frank Caliendo and Emin Gahramanov

Public Finance Review, 2009, vol. 37, issue 4, 470-502

Abstract: We study the optimal size of a pay-as-you-go social security program for an economy composed of both permanent-income and hand-to-mouth consumers. While previous work on this topic is framed within a two-period partial equilibrium setup, we study this issue in a life-cycle general equilibrium model. Because this type of welfare analysis depends critically on unobservable preference parameters, we methodically consider all parameterizations of the unobservables that are both feasible and reasonable—all parameterizations that can mimic key features of macro data (feasible) while still being consistent with micro evidence and convention (reasonable). The baseline model predicts that the optimal tax rate is between 6 percent and 15 percent of wage income.

Keywords: optimal social security; general equilibrium (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:37:y:2009:i:4:p:470-502

DOI: 10.1177/1091142109332053

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