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Social security and entrepreneurial activity

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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.

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  • Thomas Steinberger, 2005. "Social security and entrepreneurial activity," CSEF Working Papers 130, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:130
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    File URL: http://www.csef.it/WP/wp130.pdf
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    More about this item

    Keywords

    Occupational choice; Life-cycle models; Social security;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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