Working Paper: NBER ID: w1430
Authors: R. Glenn Hubbard
Abstract: This paper focuses on precautionary saving against uncertain longevity and on the annuity insurance aspects of social security within the life-cycle framework. The principal findings are three. First, the evolution of social security is reviewed in response to missing markets for providing insurance for consumption in the face of lifetime uncertainty. A simple life-cycle model is used to show that even an actuarially fair, fully funded social security system can reducenational saving. Second, to the extent that the introduction of social security reduces the size of accidental bequests, the net effect on the consumption of subsequent generations is diminished. Finally,consideration of the welfare gains from compulsory social security requires an examination of the tradeoff between the benefits to early participants from access to the annuities and the costs to generations that follow of a lower capital stock. Across a range of parameter values, the partial equilibrium impact of social security on consumptionis reversed. The introduction of an explicit bequest motive ivitigates both the initial impact of social security on saving and the long-run welfare loss from the introduction of social security.
Keywords: social security; precautionary saving; individual welfare; capital stock
JEL Codes: H55; D91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social security (H55) | individual saving (D14) |
| individual saving (D14) | aggregate capital stock (E22) |
| social security (H55) | aggregate capital stock (E22) |
| social security (H55) | accidental bequests (D14) |
| accidental bequests (D14) | net effect on consumption for subsequent generations (D15) |
| social security (H55) | long-term welfare outcomes (I38) |