Efficiency and Equity Effects of Alternative Social Security Rules

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    This paper studies human-capital formation, labor-supply, and retirement decisions associated with four alternative regimes of social security. We implement a theoretical model with overlapping generations of households and two different ability types within each generation. We find that with a given social security contribution rate, it is better to transfer income to the elderly as old-age benefits, paid independently of labor-market status. This holds with both Bismarckian and Beveridgean benefits. With sufficiently small ability differences, a Bismarckian system of old-age benefits is likely to offer the highest level of utility to all citizens.
    Original languageEnglish
    Issue number3
    Pages (from-to)325-358
    Number of pages34
    Publication statusPublished - 2004


    • Social security
    • Education
    • Retirement
    • Labor supply
    • General-equilibrium models

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