TY - JOUR
T1 - Welfare and comparative statics implications of fair social security. A steady-state analysis
AU - Karni, Edi
AU - Zilcha, Itzhak
N1 - Funding Information:
A common practice in economics is to seek a rational justification for every non-transient institution and market phenomenon. It is not surprising, therefore, that the persistent government intervention in the annuities market through the provision of social security is rationalized in terms of different sorts of market failures. Since in a competitive economy with symmetric information, fair life insurance and annuities, and rational agents, Pareto efficient allocations are attainable [see Karni and Zilcha (1984)] the justitica-tion for mandatory social security must challenge one or more of these basic premises. Either the markets are informationally imperfect [see Abel (1984), Eckstein, Eichenbaum and Peled (1985)], or life insurance and annuities are actuarially unfair while the social security system is (more) fair or the intergenerational allocation of incomes needs to be improved through the social security system. This paper examines the welfare and the comparative statics implications of introducing an actuarially fair social security system, in a steady state, when life insurance and annuity markets are not fair. *We are grateful to Our referees for valuable comments and suggestions. This research has been supported by the National Science Foundation Grant No. SES 8408670.
PY - 1986/8
Y1 - 1986/8
N2 - This paper examines the steady-state welfare and comparative statics implications of fair social security in an overlapping generations model with uncertain lifetime. The model is designed to capture the effects of lifetime uncertainty extending over the individual's entire lifespan, the effects of intentional and unintentional bequests, and the effects of the earning profile. He shows that the welfare effects depend on the size of the benefits and the structure of the social security tax. In particular, even fair social security may have negative welfare implications if the underlying tax structure is ill-designed. Some comparative statics implications are analyzed.
AB - This paper examines the steady-state welfare and comparative statics implications of fair social security in an overlapping generations model with uncertain lifetime. The model is designed to capture the effects of lifetime uncertainty extending over the individual's entire lifespan, the effects of intentional and unintentional bequests, and the effects of the earning profile. He shows that the welfare effects depend on the size of the benefits and the structure of the social security tax. In particular, even fair social security may have negative welfare implications if the underlying tax structure is ill-designed. Some comparative statics implications are analyzed.
UR - http://www.scopus.com/inward/record.url?scp=38249041188&partnerID=8YFLogxK
U2 - 10.1016/0047-2727(86)90055-1
DO - 10.1016/0047-2727(86)90055-1
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AN - SCOPUS:38249041188
SN - 0047-2727
VL - 30
SP - 341
EP - 357
JO - Journal of Public Economics
JF - Journal of Public Economics
IS - 3
ER -