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Optimal pay-as-you-go social security when retirement is endogenous and labor productivity depreciates

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  • Miyazaki, Koichi

Abstract

This paper considers an overlapping-generations model with pay-as-you-go social security and retirement decision making by an old agent. In addition, the paper assumes that labor productivity depreciates. Under this setting, socially optimal allocations are examined. The first-best allocation is an allocation that maximizes welfare when a social planner distributes resources and forces an old agent to work and retire as she wants. The second-best allocation is an allocation that maximizes welfare when she can use only pay-as-you-go social security in a decentralized economy. The paper finds a range of an old agent's labor productivity such that the first-best allocation is achieved in the decentralized economy. This differs from the finding in Michel and Pestieau (2013) that the first-best allocation cannot be achieved in the decentralized economy.

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  • Miyazaki, Koichi, 2014. "Optimal pay-as-you-go social security when retirement is endogenous and labor productivity depreciates," MPRA Paper 61166, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:61166
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    7. Philippe Michel & Pierre Pestieau, 2013. "Social Security And Early Retirement In An Overlapping-Generations Growth Model," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 723-737, November.
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    9. Chattopadhyay, Subir, 2006. "Optimality in stochastic OLG models: Theory for tests," Journal of Economic Theory, Elsevier, vol. 131(1), pages 282-294, November.
    10. Rosa Aísa & Fernando Pueyo & Marcos Sanso, 2012. "Life expectancy and labor supply of the elderly," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(2), pages 545-568, January.
    11. Hu, Sheng Cheng, 1979. "Social Security, the Supply of Labor, and Capital Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 274-283, June.
    12. Miyazaki, Koichi, 2014. "The effects of the raising-the-official-pension-age policy in an overlapping generations economy," Economics Letters, Elsevier, vol. 123(3), pages 329-332.
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    Cited by:

    1. Chen Hung-Ju & Miyazaki Koichi, 2022. "Pay-as-You-Go Social Security and Educational Subsidy in an Overlapping Generations Model with Endogenous Fertility and Endogenous Retirement," The B.E. Journal of Macroeconomics, De Gruyter, vol. 22(2), pages 787-820, June.
    2. Jaimes, Richard & Westerhout, Ed, 2023. "Optimal policies in an ageing society," The Journal of the Economics of Ageing, Elsevier, vol. 26(C).
    3. Hirono, Makoto & Mino, Kazuo, 2019. "Pension, Retirement, and Growth in the Presence Heterogeneous Elderly," MPRA Paper 98096, University Library of Munich, Germany.
    4. Cipriani, Giam Pietro & Fioroni, Tamara, 2022. "Social security and endogenous demographic change: child support and retirement policies," Journal of Pension Economics and Finance, Cambridge University Press, vol. 21(3), pages 307-325, July.
    5. Hung-ju Chen & Koichi Miyazaki, 2020. "Labor productivity, labor supply of the old, and economic growth," Economics Bulletin, AccessEcon, vol. 40(1), pages 277-285.
    6. Chen Hung-Ju & Miyazaki Koichi, 2018. "Fertility and labor supply of the old with pay-as-you-go pension and child allowances," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(1), pages 1-19, January.
    7. Chen, Hung-Ju, 2016. "Fertility, Retirement Age, and PAYG Pensions," MPRA Paper 69819, University Library of Munich, Germany.
    8. Nguyen, Quynh-Nga, 2024. "Intergenerational time transfer, retirement and public pensions," The Journal of the Economics of Ageing, Elsevier, vol. 27(C).
    9. Hirono, Makoto & Mino, Kazuo, 2020. "Pension Reforms, Population Aging, and Retirement Decision of the Elderly in a Neoclassical Growth Model," MPRA Paper 102467, University Library of Munich, Germany.
    10. Cipriani, Giam Pietro & Fioroni, Tamara, 2024. "Human capital and pensions with endogenous fertility and retirement," Macroeconomic Dynamics, Cambridge University Press, vol. 28(2), pages 478-494, March.
    11. Tran, Quang-Thanh, 2022. "The aging tax on potential growth in Asia," Journal of Asian Economics, Elsevier, vol. 81(C).
    12. Chen, Hung-Ju, 2015. "Fertility and PAYG Pensions in an Overlapping Generations Model with Endogenous Retirement," MPRA Paper 68020, University Library of Munich, Germany.

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    More about this item

    Keywords

    Overlapping-generations model; pay-as-you-go social security; endogenous retirement; depreciation of labor productivity; first-best allocation; second-best allocation;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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