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Status Quo Problem In Social Security Reforms

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  • CONESA, JUAN CARLOS
  • GARRIGA, CARLOS

Abstract

Several papers show that a privatization of the social security system will not be politically supported by the current generations. The asymmetry in the timing of welfare gains and losses is what generates a status quo bias in favor of the unfunded system. We explore a simple mechanism to offset the status quo problem using a general-equilibrium overlapping generations model with endogenous labor supply calibrated to the Spanish economy. The mechanism implies a privatization of the social security system together with the elimination of compulsory retirement rules. Along the transition path, this mechanism drastically shortens (from three decades to only one decade) the convergence to the new steady state, diminishing the asymmetry in the timing of welfare gains and losses. As a result, there is an increase beyond 50% in the fraction of individuals that are better off with the implementation of such a reform.This work has benefited from useful comments by Jonathan Heathcote, Antonio Manresa, and seminar participants at CREB, Carlos III de Madrid, ESF Network in Social Insurance, and Stockholm School of Economics. We acknowledge financial support from Ministerio de Ciencia y Tecnología (SEC2000-0796) and Generalitat de Catalunya (SGR00-016).

Suggested Citation

  • Conesa, Juan Carlos & Garriga, Carlos, 2003. "Status Quo Problem In Social Security Reforms," Macroeconomic Dynamics, Cambridge University Press, vol. 7(5), pages 691-710, November.
    • Handle: RePEc:cup:macdyn:v:7:y:2003:i:5:p:691-710_3
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    Cited by:

    1. Holger Zemanek & Ansgar Belke & Gunther Schnabl, 2010. "Current account balances and structural adjustment in the euro area," International Economics and Economic Policy, Springer, vol. 7(1), pages 83-127, May.
    2. Bagchi, Shantanu, 2016. "Is The Social Security Crisis Really As Bad As We Think?," Macroeconomic Dynamics, Cambridge University Press, vol. 20(3), pages 737-776, April.
    3. Rojas, Juan A., 2005. "Life-cycle earnings, cohort size effects and social security: a quantitative exploration," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 465-485, February.
    4. Holger Zemanek & Ansgar Belke & Gunther Schnabl, 2009. "Current Account Imbalances and Structural Adjustment in the Euro Area: How to Rebalance Competitiveness," Discussion Papers of DIW Berlin 895, DIW Berlin, German Institute for Economic Research.
    5. Juan Carlos Conesa & carlos Carriga, 2004. "Optimal Design of Social Security Reforms," UFAE and IAE Working Papers 642.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    6. Yamada, Tomoaki, 2011. "A politically feasible social security reform with a two-tier structure," Journal of the Japanese and International Economies, Elsevier, vol. 25(3), pages 199-224, September.
    7. Koka, Katerina & Kosempel, Stephen, 2014. "A life-cycle analysis of ending mandatory retirement," Economic Modelling, Elsevier, vol. 38(C), pages 57-66.
    8. Juan C. Conesa & Carlos Garriga, 2008. "Optimal Fiscal Policy In The Design Of Social Security Reforms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 291-318, February.
    9. repec:zbw:rwirep:0176 is not listed on IDEAS
    10. Andersen, Torben M. & Bhattacharya, Joydeep, 2013. "Unfunded Pensions And Endogenous Labor Supply," Macroeconomic Dynamics, Cambridge University Press, vol. 17(5), pages 971-997, July.
    11. Craig P. Aubuchon & Juan Carlos Conesa & Carlos Garriga, 2011. "A primer on social security systems and reforms," Review, Federal Reserve Bank of St. Louis, vol. 93(Jan), pages 19-35.
    12. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 28(Jul), pages 2-13.
    13. Juan A. Rojas, 2009. "Social Security reform with imperfect substitution between less and more experienced workers," Working Papers 0832, Banco de España.
    14. Caliendo, Frank N. & Guo, Nick L., 2014. "Roosevelt And Prescott Come To An Agreement," Macroeconomic Dynamics, Cambridge University Press, vol. 18(6), pages 1383-1402, September.
    15. Emin Gahramanov & Xueli Tang, 2013. "Should We Refinance Unfunded Social Security?," Economica, London School of Economics and Political Science, vol. 80(319), pages 532-565, July.
    16. Sánchez Martín, Alfonso R., 2010. "Endogenous retirement and public pension system reform in Spain," Economic Modelling, Elsevier, vol. 27(1), pages 336-349, January.
    17. Ansgar Belke & Holger Zemanek & Gunther Schnabl, 2010. "Current Account Balances and Structural Adjustment in the Euro Area," Ruhr Economic Papers 0176, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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