Should We Refinance Unfunded Social Security?

34 Pages Posted: 29 Jun 2013

See all articles by Emin Gahramanov

Emin Gahramanov

American University of Sharjah - Department of Economics

Xueli Tang

Deakin University

Date Written: July 2013

Abstract

Within a continuous‐time overlapping generations model, featuring endogenous intensive margin of the labour supply and retirement decision, we analyse the issue of passing the burden of payroll revenues onto consumption or capital. We find that large long‐run welfare gains occur when pension benefits are refinanced by consumption taxes. However, the transition to the new steady state is very painful for a large fraction of existing cohorts. On the other hand, the capital base is too small to sustain pension benefits but could be made larger if capital taxes are raised. Yet that would entail significant welfare losses.

Suggested Citation

Gahramanov, Emin and Tang, Xueli, Should We Refinance Unfunded Social Security? (July 2013). Economica, Vol. 80, Issue 319, pp. 532-565, 2013, Available at SSRN: https://ssrn.com/abstract=2287013 or http://dx.doi.org/10.1111/ecca.12023

Emin Gahramanov

American University of Sharjah - Department of Economics ( email )

PO Box 26666
Sharjah
United Arab Emirates

Xueli Tang

Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

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