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SOCIAL SECURITY EVALUATION: A CRITIQUE

Published online by Cambridge University Press:  01 February 2005

JORGE SOARES
JORGE SOARES
Affiliation:
George Washington University
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Abstract

I study the bias of actuarially fair measures commonly used to evaluate the impact of a social security system on the well-being of individuals. I investigate how the magnitude of this bias is affected by different features of a pay-as-you-go social security system. Social security affects an individual's welfare in ways other than through its direct effect on her lifetime income. It influences labor and savings decisions and hence factor prices, affecting labor income and the return to savings. Although social security can provide insurance against risk, it can also push borrowing-constrained individuals further away from their optimal consumption paths. I show that, by ignoring these features, actuarially fair measures can grossly misevaluate the impact of social security on the well-being of an individual.

Keywords

Social SecurityWelfare MeasureActuarial FairnessGeneral EquilibriumInsuranceBorrowing Constraints
Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 9 , Issue 1 , February 2005 , pp. 57 - 97
Copyright
© 2005 Cambridge University Press

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