Change search
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf
Sustaining Social Security
Universidad de San Andrés.
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
2004 (English)Report (Other academic)
Abstract [en]

This paper analyzes the sustainability of intergenerational transfers in politico-economic equililbrium. We argue that these transfers arise naturally in a Markov perfect equilibrium in the fundamental state variables. In contrast to earlier literature, our explanation does not resort to altruism, commitment, or trigger strategies but rests on the incentive for young households to monopolize capital accumulation, as pointed out by Kotlikoff and Rosenthal (1990). Since transfers to the old are instrumental in that respect, the vote-maximizing platform under electoral competition sustains a large social security system. Introducing fully rational voters and probabilistic voting in the standard Diamond (1965) OLG model, we find that transfers in politico-economic equilibrium are too high relative to the social optimum. Standard functional form assumptions yield analytical solutions for both the Ramsey and the probabilistic voting case. Under realistic parameter values, the model predicts a social security tax rate of 12 percent, as compared to a Ramsey tax rate of 3.5 percent. Other predictions of the model are also consistent with the data. Analytical solutions for the case with endogenous labor supply and tax distortions show the results of the model to be robust.

Place, publisher, year, edition, pages
Stockholm: IIES , 2004. , p. 34
Series
Seminar Paper / Institute for International Economic Studies, Stockholm University. (Online), ISSN 1653-610X ; 731
Keywords [en]
social security, intergenerational transfers, Markov perfect equilibrium, probabilistic voting, aggregate saving, aggregate labor supply
National Category
Economics
Identifiers
URN: urn:nbn:se:su:diva-42123OAI: oai:DiVA.org:su-42123DiVA, id: diva2:343990
Available from: 2010-08-19 Created: 2010-08-17 Last updated: 2010-08-19Bibliographically approved

Open Access in DiVA

fulltext(413 kB)577 downloads
File information
File name FULLTEXT01.pdfFile size 413 kBChecksum SHA-512
1c29a87516b71e0705078c4f246cf11e10d6461ea0c0c779d682133db4eed69643d435410678c43dd06b702f2b3bb41137a91115270bafc09ff3505bd1f71798
Type fulltextMimetype application/pdf

By organisation
Institute for International Economic Studies
Economics

Search outside of DiVA

GoogleGoogle Scholar
Total: 577 downloads
The number of downloads is the sum of all downloads of full texts. It may include eg previous versions that are now no longer available

urn-nbn

Altmetric score

urn-nbn
Total: 298 hits
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf