Paper #234

Title:

Is altruism important for understanding the long-run effects of social security?

Author:

Luisa Fuster

Date:

September 1997

Abstract:

This paper quantifies the effects of social security on capital accumulation and wealth distribution in a life cycle framework with altruistic individuals. The main findings of this paper are that the current U.S. social security system has a significant impact on capital accumulation and wealth distribution. I find that social security crowds out 8\% of the capital stock of an economy without social security. This effect is driven by the distortions of labor supply due to the taxation of labor income rather than by the intergenerational redistribution of income imposed by the social security system. In contrast to previous analysis of social security, I found that social security does not affect the savings rate of the economy. Another interesting finding is that even though the current U.S. social security system is progressive in its benefits, it may lead to a more disperse distribution of wealth.

Keywords:

Social security, capital accumulation, altruism, wealth distribution

JEL codes:

E62, H55, J2, H22

Area of Research:

Macroeconomics and International Economics

Published in:

Review of Economic Dynamics 2, 3, (1999), pp. 616-637

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