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Social security and entrepreneurial activity

Thomas Steinberger ()
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Thomas Steinberger: CSEF, University of Salerno, http://www.csef.it

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We solve the dynamic occupational choice problem of a finitelylived, borrowing constrained household which faces exogenously given stochastic wages and business returns. Entrepreneurship means investing personal wealth into a risky asset and neither receiving wage income nor paying social security contributions. Social security bene- fits in retirement depend on the number of contribution periods. We show that, entrepreneurial activity depends negatively on the generosity of the social security system and non-monotically on the size of the system. Numerical results for a multi-period version suggest that for reasonable parameter values the relationship between the size of the social security system and entrepreneurial activity is negative. In simulation experiments, we find that lowering social security contributions for the young has a relatively larger effect on entrepreneurial activity than other ways to reduce the size of the system.

Keywords: Occupational choice; Life-cycle models; Social security (search for similar items in EconPapers)
JEL-codes: G11 H55 J24 (search for similar items in EconPapers)
Date: 2005-01-01
New Economics Papers: this item is included in nep-ent and nep-pub
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