Template-Type: ReDIF-Paper 1.0
Author-Name:  Hans Fehr
Author-X-Name-First: Hans
Author-X-Name-Last: Fehr

Author-Name:  Christian Habermann
Author-X-Name-First: Christian
Author-X-Name-Last: Habermann

Author-Name:  Fabian Kindermann
Author-X-Name-First: Fabian
Author-X-Name-Last: Kindermann

Title: Social Security with Rational and Hyperbolic Consumers
Abstract: The present paper studies the role of social security in an economy populated by
overlapping generations of individuals that have time-consistent or time-inconsistent
preferences, face mortality and individual income risk, borrowing constraints as well
as progressive income taxes. Our simulations start from an artificial equilibrium
where social security is completely neutral. Next we introduce successively alternative
deviations from neutrality in order to isolate the various economic effects of
social security. The latter are mainly the insurance provision against mortality and
income risk, the negative liquidity effects for young households and the provision
of a commitment technology for present-biased hyperbolic consumers. Our simulations
indicate that the positive effects of social security dominate the negative ones
for a wide range of parameter combinations. For our central parametrization social
security induces an overall welfare gain which amounts to roughly 1.5 percent of
aggregate resources in the hyperbolic model and a welfare loss of about 0.5 percent
of resources in the model with rational consumers.
Length:  34 pages
Creation-Date:  2006-12
File-URL: http://www.bgpe.de/texte/DP/010_habermann1.pdf
File-Format: Application/pdf
File-Function: First version, 2006
Number: 010
Classification-JEL: H55, J26
Keywords: social security, stochastic general equilibrium, hyperbolic consumers
Handle: RePEc:bav:wpaper:010_kindermann1