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

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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 languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages16
Volume2002-24
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-24

Keywords

  • social security
  • pensions
  • privatization
  • overlapping generations

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