Capital-Skill Complementarity and the Redistributive Effects of Social Security Reform
24 Pages Posted: 4 Nov 2003
Date Written: September 2003
This paper analyses the general equilibrium implications of reforming pay-as-you-go pension systems in an economy with heterogeneous agents, human capital investment and capital skill complementarity. It shows that increasing funding delivers in the long run higher physical and human capital and therefore higher output, but also higher wage and income inequality. The latter affects preferences over the degree of redistribution of the remaining pay-as-you-go component: despite the greater role that redistribution could perform in the new steady state, we find a preference for lower redistribution for a larger group of the population.
Keywords: capital-skill complementarity, inter and intragenerational redistribution, pay-as-you-go, fully funded
JEL Classification: H55, J31
Suggested Citation: Suggested Citation