Social Security, Growth, and Welfare in Overlapping Generations Economies With or Without Annuities

39 Pages Posted: 12 Jun 2012

See all articles by Neil Bruce

Neil Bruce

University of Washington - Department of Economics

Stephen J. Turnovsky

University of Washington - Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 12, 2012

Abstract

We examine the impact of a stylized pay-as-you-go (PAYGO) Social Security program in an economy of overlapping generations with equilibrium growth. We adopt realistic mortality and other demographic assumptions and allow for the presence or absence of full life annuities. In all cases we find that steady state economies with PAYGO Social Security programs grow more slowly than those without. Also, we find that, for steady state economies having the same wage rate at the current time, initial all-inclusive wealth and lifetime expected utility are lower for households newly entering the economy with Social Security, and for all households subsequent. Growth and welfare are lower in economies without annuities, but the quantitative impact depends on how the financial wealth of decedents is distributed across the surviving population. With or without annuities, the presence of a PAYGO Social Security program reduces growth and welfare.

Keywords: Social Security, Growth, Demography

JEL Classification: H55, D91, O40

Suggested Citation

Bruce, Neil and Turnovsky, Stephen J., Social Security, Growth, and Welfare in Overlapping Generations Economies With or Without Annuities (June 12, 2012). Available at SSRN: https://ssrn.com/abstract=2083256 or http://dx.doi.org/10.2139/ssrn.2083256

Neil Bruce (Contact Author)

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Stephen J. Turnovsky

University of Washington - Institute for Economic Research ( email )

Seattle, WA 98195
United States
206-685-8028 (Phone)
206-543-5955 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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