Inequality and Social Security Reforms

Jean-Olivier Hairault and Francois Langot

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Abstract: This paper develops a quantitative Markovian overlapping generations model with altruistic individuals and incomplete financial markets in order to analyze the long-run distributional implications of two hypothetical public social security policy changes, made in response to impending future demographic shifts. The two policy changes considered are first, raising the tax rate while keeping the replacement rate constant and second, keeping the tax rate constant while lowering the replacement rate. Whereas this latter policy is detrimental to the relative situation of the retirees, the huge financial heterogeneity in the first scenario explains why the increase in the proportional labor tax is relatively badly absorbed by low-productivity workers, leading to an increase in welfare inequality. We show that the very popular idea that a more funded system would ineluctably lead to more inequalities in well-being can be justified only by focusing on the inequality of positions in case of general equilibrium.

Keywords: Inequality; social security reform; idiosyncratic uncer- tainty; incomplete markets; altruism (search for similar items in EconPapers)
Date: 2008
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00270290v1
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Citations: View citations in EconPapers (16)

Published in Journal of Economic Dynamics and Control, 2008, 32 (2), pp.386-410. ⟨10.1016/j.jedc.2007.01.033⟩

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Related works:
Journal Article: Inequality and social security reforms (2008)
Working Paper: Inequality and Social Security Reforms (2008)
Working Paper: Inequality and Social Security Reforms (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00270290

DOI: 10.1016/j.jedc.2007.01.033

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