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OPTIMAL PAY-AS-YOU-GO SOCIAL SECURITY WITH ENDOGENOUS RETIREMENT

Published online by Cambridge University Press:  03 July 2017

Koichi Miyazaki
Koichi Miyazaki*
Affiliation:
Kagawa University
*
Address correspondence to: Koichi Miyazaki, Faculty of Economics, Kagawa University, 2-1, Saiwaicho, Takamatsu, Kagawa 7608523, Japan; e-mail: [email protected].
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Abstract

This paper considers an overlapping-generations model with pay-as-you-go social security and retirement decision making by an old agent. In addition, this paper assumes that labor productivity depreciates. Under this setting, socially optimal allocations are examined. The first-best allocation is an allocation that maximizes welfare when a social planner distributes resources and forces an old agent to work and retire as she wants. The second-best allocation is one that maximizes welfare when a social planner can use only pay-as-you-go social security in a decentralized economy. This paper finds a range of an old agent's labor productivity such that the first-best allocation is achieved in a decentralized economy. This finding differs from that in Michel and Pestieau [“Social security and early retirement in an overlapping-generations growth model”, Annals of Economics & Finance, 2013], which notes that the first-best allocation cannot be achieved in a decentralized economy.

Keywords

Optimal Pay-As-You-Go Social SecurityEndogenous RetirementDepreciation of Labor ProductivityFirst-Best and Second-Best Allocation
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 2 , March 2019 , pp. 870 - 887
Copyright
Copyright © Cambridge University Press 2017 

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Footnotes

I thank the editor and two anonymous referees of this journal, Been-Lon Chen, Hung-Ju Chen, Nan-Kuang Chen, Nobuhiro Hosoe, Shinsuke Ikeda, Masanori Kashiwagi, Ayako Kondo, Chih-Fang Lai, Yiting Li, Ryosuke Okamoto, Yi-Chan Tsai, and seminar participants at National Taiwan University, CEF 2015, and Policy Modeling Workshop at GRIPS for their helpful comments and suggestions, which helped the author a lot to improve this paper. The author acknowledges financial support from the Ministry of Science and Technology of Taiwan (Grant number:102-2410-H-002-020). Of course, all errors are the author's responsibility.

References

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