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Anyone for Social Security Reform?

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  • Partha Sen

Abstract

A reform of a pay-as-you-go social security makes the pensioners worse off and the working generations better off in the period of the reform (in a dynamically efficient economy without altruism). The observed reluctance across all age groups to support such reforms is usually explained by the insurance properties of these schemes. I propose an alternative in a two sector setting. Since the old consume labor-intensive goods like healthcare etc., the reform causes labor demand to fall and reduces wages. This effect could dominate the lower social security payments for the young. Thus both the young and old oppose the reform (that makes the unborn generations better off--the new steady welfare, with a higher capital stock, is higher).

Suggested Citation

  • Partha Sen, 2016. "Anyone for Social Security Reform?," CESifo Working Paper Series 6035, CESifo.
    • Handle: RePEc:ces:ceswps:_6035
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    References listed on IDEAS

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    4. Sinn, Hans-Werner, 2000. "Why a Funded Pension System is Useful and Why It is Not Useful," Munich Reprints in Economics 19859, University of Munich, Department of Economics.
    5. Dirk Krueger & Felix Kubler, 2006. "Pareto-Improving Social Security Reform when Financial Markets are Incomplete!?," American Economic Review, American Economic Association, vol. 96(3), pages 737-755, June.
    6. A. J. Auerbach & M. Feldstein (ed.), 2002. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 4, number 4.
    7. Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
    8. Hans-Werner Sinn, 2000. "Why a Funded Pension System is Needed and Why It is Not Needed," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(4), pages 389-410, August.
    9. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
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    Cited by:

    1. Partha Sen, 2020. "Postponing Retirement and Social Security in a Two Sector Model," CESifo Working Paper Series 8751, CESifo.

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    More about this item

    Keywords

    social security reform; two sector models; labor market;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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