Loss aversion and social security: a general equilibrium approach
Hyeon Park ()
Additional contact information
Hyeon Park: Manhattan College
International Review of Economics, 2018, vol. 65, issue 1, 51-75
Abstract Introducing an intertemporal model of loss aversion, I study the role of social security in determining intergenerational redistribution when consumers have reference-dependent preferences with loss aversion. Using a unified social security model in which different social security plans are specified via different degrees of fundedness, I examine the effect of the transition from a less funded system to a more funded one on savings, consumption, and capital accumulation for an OLG production economy. A general equilibrium analysis shows that the direction of intertemporal equilibrium is dependent on how the total savings responds to the interest rate change, but the effect of the payroll tax on capital accumulation is ambiguous. By deriving closed-form solutions, I find that an increase in fundedness intensity unambiguously increases capital accumulation in steady states, while the tax effects on consumption and savings are not conclusive. Moreover, simulation exercises show that when consumers are prone to over-consume because they care more about the contemporaneous gain utility, the fully funded system may help the individuals smooth out their lifecycle consumption.
Keywords: Loss aversion; Partially funded social security; Intergenerational redistribution (search for similar items in EconPapers)
JEL-codes: D9 E6 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s12232-017-0284-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:spr:inrvec:v:65:y:2018:i:1:d:10.1007_s12232-017-0284-5
Ordering information: This journal article can be ordered from
http://www.springer. ... cy/journal/12232/PS2
Access Statistics for this article
International Review of Economics is currently edited by Luigino Bruni
More articles in International Review of Economics from Springer, Happiness Economics and Interpersonal Relations (HEIRS)
Bibliographic data for series maintained by Sonal Shukla ().