Working Paper: NBER ID: w10444
Authors: Takashi Oshio
Abstract: In this paper we investigate why and to what extent the government should have a social security trust fund, and how it should manage the fund in the face of demographic shocks, based on a simple overlapping-generations model. We show that, given an aging population, a trust fund in some form could achieve the (modified) golden rule or to offset the negative income effect of a PAYGO system. Besides, in a closed economy where factor-prices effects dominate, using the trust fund as a buffer for demographic shocks could lead to a widening of intergenerational inequality. We also the discuss policy implications of our analysis on the social security reform debate in Japan, including the fixed tax method and the use of the trust fund in the face of a rapidly aging population.
Keywords: No keywords provided
JEL Codes: H55; H23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| well-managed social security trust fund (H55) | offset negative income effects of PAYGO system (H69) |
| well-managed social security trust fund (H55) | enhance capital accumulation (E22) |
| well-managed social security trust fund (H55) | enhance social welfare over time (D69) |
| trust fund as buffer for demographic shocks (J19) | widening intergenerational inequality (I24) |
| demographic shocks (J11) | impact on trust fund (H69) |
| government's choice of using trust fund strategically (H69) | implications for future generations' welfare (D15) |