Investing Social Security in the Equity Market. Does it Make a Difference?

Posted: 25 Apr 2000

See all articles by Pierre Pestieau

Pierre Pestieau

University of Liège - Research Center on Public and Population Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Uri M. Possen

Cornell University - Department of Economics

Abstract

We show that investing social security in the equity market makes no difference under three assumptions: (1) the transition generation is compensated by public borrowing, (2) the benefit rule is unchanged, and (3) individuals' portfolio choices are unconstrained. We also show that when these assumptions do not hold, the reform is not neutral; it can be Pareto improving but it can also be Pareto worsening. This depends particularly on the way portfolio choices are constrained. For example, if a majority of households are kept away from the equity market because of liquidity constraints, investing part of their contributions in the equity market can be Pareto improving.

JEL Classification: H55

Suggested Citation

Pestieau, Pierre and Possen, Uri, Investing Social Security in the Equity Market. Does it Make a Difference?. National Tax Journal, March 2000, Available at SSRN: https://ssrn.com/abstract=222734

Pierre Pestieau

University of Liège - Research Center on Public and Population Economics ( email )

Boulevard du Rectorat, 7, Batiment 31
Sart-Tilman
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Belgium
+32 4 366 3108 (Phone)
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

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Louvain la Neuve
Belgium

Uri Possen (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
(607) 255-4254 (Phone)

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