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The Extension of Social Security Coverage in Developing Countries

Juergen Jung () and Chung Tran

No 2011-06, Working Papers from Towson University, Department of Economics

Abstract: We study the dynamic general equilibrium effects of introducing a social pension program to elderly informal sector workers in developing countries who lack formal risk sharing mechanisms against income and longevity risk. To this end, we formulate a stochastic dynamic general equilibrium model that incorporates defining features of developing countries: a large informal sector, private transfers as an informal safety net, and a non-universal social security system. We find that the extension of retirement benefits to informal sector workers results in efficiency losses due to adverse effects on capital accumulation and the allocation of resources across formal and informal sectors. Despite these losses recipients of social pensions experience welfare gains as the positive insurance effects attributed to the extension of a social insurance system dominate. The welfare gains crucially depend on the skill distribution, private intra-family transfers and the specific tax used to finance the expansion.

Keywords: Informal Sector; Family Social Safety Nets; Social Pension; General Equi-librium; and Welfare. (search for similar items in EconPapers)
JEL-codes: E6 E21 E26 H30 H53 H55 I38 O17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dev, nep-dge, nep-iue, nep-lab and nep-lam
Date: 2011-11, Revised 2011-11
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Related works:
Journal Article: The extension of social security coverage in developing countries (2012) Downloads
Working Paper: The Extension of Social Security Coverage in Developing Countries (2007) Downloads
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