Journal Article

Elimination of Social Security in a Dynastic Framework

Luisa Fuster, Ayşe İmrohoroğlu and Selahattin İmrohoroğlu

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 74, issue 1, pages 113-145
Published in print January 2007 | ISSN: 0034-6527
Published online January 2007 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2007.00416.x
Elimination of Social Security in a Dynastic Framework

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  • Demand and Supply of Labour
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Much of the existing literature on social security has taken the extreme assumption that individuals have little or no altruism; this paper takes an opposite assumption that there is full two-sided altruism. When households insure members that belong to the same family line, privatizing social security can gain public support. In our benchmark model calibrated to the U.S. economy, privatization without compensation is favoured by 52% of the population. If social security participants are fully compensated for their contributions, and the transition to privatization is financed by a combination of debt and a consumption tax, 58% experience a welfare gain. These gains and the resulting public support for social security reform depend critically on a flexible labour market. If the labour supply elasticity is low, then support for privatization disappears.

Keywords: D64; H55; J22

Journal Article.  13944 words.  Illustrated.

Subjects: Demand and Supply of Labour ; Welfare Economics ; National Government Expenditures and Related Policies

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