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A welfare analysis of social security in a dynastic framework*
Author(s) -
Fuster Luisa,
İmrohoroğlu Ayşe,
İmrohoroğlu Selahattin
Publication year - 2003
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.t01-1-00108
Subject(s) - social security , earnings , altruism (biology) , economics , welfare , crowding out , overlapping generations model , social welfare , yield (engineering) , life expectancy , general equilibrium theory , microeconomics , demographic economics , monetary economics , psychology , social psychology , finance , sociology , demography , political science , law , market economy , population , materials science , metallurgy
In this article, we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability. Contrary to previous research, our results indicate that steady‐state welfare increases with social security for most households, although by very different amounts. This result is mainly due to two factors. First, the presence of two‐sided altruism significantly mitigates the crowding out effect of unfunded social security. Second, ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security.