General-Equilibrium Effects of Privatisation: The Missing Piece in Social Security Reform

B.J.A.M. van Groezen; A.C. Meijdam; H.A.A. Verbon

General-Equilibrium Effects of Privatisation: The Missing Piece in Social Security Reform

B.J.A.M. van Groezen, A.C. Meijdam, H.A.A. Verbon

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Abstract

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.

Original language	English
Place of Publication	Tilburg
Publisher	Macroeconomics
Number of pages	16
Volume	2002-24
Publication status	Published - 2002

Publication series

Name	CentER Discussion Paper
Volume	2002-24

Keywords

social security
pensions
privatization
overlapping generations

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title = "General-Equilibrium Effects of Privatisation: The Missing Piece in Social Security Reform",

abstract = "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.",

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author = "{van Groezen}, B.J.A.M. and A.C. Meijdam and H.A.A. Verbon",

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N2 - 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.

AB - 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.

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KW - pensions

KW - privatization

KW - overlapping generations

M3 - Discussion paper

VL - 2002-24

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BT - General-Equilibrium Effects of Privatisation

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