This paper analyses the effects of reducing unfunded social security in a closed economy that consists of a service sector and a commodity sector.It is shown that if old agents mainly demand labour intensive services, a modest decrease of the pay-as-you-go pension scheme still raises long-run utility as long as the economy is dynamically efficient.However, entirely privatising the social security system will sooner lead to dynamic inefficiency than in the conventional one-sector model, leading to a different conclusion about the desirability of unfunded pensions.
|Place of Publication||Tilburg|
|Number of pages||16|
|Publication status||Published - 2002|
|Name||CentER Discussion Paper|
- social security
- overlapping generations