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Vol. 30. Issue 83.
Pages 27-55 (May - August 2007)
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Vol. 30. Issue 83.
Pages 27-55 (May - August 2007)
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Demography and Uncertainty in Economic Growth: An Application to Social Security
Visits
1993
Miguel Sánchez Romero
Universidad Autónoma de Madrid
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Abstract

The aim of this paper is to study the impact on economic growth of public pension systems, both funded and unfunded, under different demographic scenarios with a competitive economy and a fixed labor supply. An OLG growth model is used with realistic demography, in which each individual can be traced throughout her lifecycle, by using a longitudinal accounting framework. Under this setup, I find that both funded and unfunded pension systems can achieve the same steady state, either the «modified golden rule» or the «golden rule,» as long as the population increases. Nonetheless, the dynamic transition of each social security system to this steady state differs. This result shows that when labor supply is inelastic public pension systems do not necessarily alter the capital stock in the long run.

Keywords:
Overlapping generations
Demography
Multiple equilibria
Social Security
Crowding-out effect
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I am thankful to Felipe Sáez, Juan Carlos Conesa, Joaquín Vera Grijalba, Fernando García-Belenguer Campos, and two anonymous referees for their helpful suggestions and comments. Aid from the Universidad Autónoma de Madrid during the last four years is also gratefully acknowledged. Any errors are my own.

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