Social Security and the Wealth Distribution with Overlapping Generations and Aggregate Uncertainty

Stanford University, Stanford CA

Investigators

Abstract

This research investigates the macroeconomic and welfare implications of social security reform in models with aggregate shocks. It is motivated by the observation that the great depression in the U.S. led to an introduction of an unfunded social security system, yet the role of an unfunded social security system for the allocation of intergenerational aggregate risk are not well understood theoretically or quantitatively. A primary goal of this research is to quantitatively evaluate the aggregate economic and welfare effects of a social security reform from a pay-as-you-go to a fully funded system within an overlapping generations model with stochastic production, idiosyncratic uncertainty, and a large number of generations. Given the current debates about reform of the social security system, another goal of this research is to inform policy makers about the trade-offs involved in moving from an unfunded to a funded system of social security in the presence of aggregate economic fluctuations.