The Welfare Effects of Social Security with Individual and Aggregate Risk: A Macroeconomic Analysis
Coordinator: Prof. Dr. Alexander Ludwig
Participants: Dr. Daniel Harenberg, Dipl.-Vw. Christian Geppert
Following the recent financial market crisis most of the focus of academic researchers, policy makers and the general public is on the short-run policy responses. However, the financial market crisis and the capital markets risks that became apparent also have profound implications for the design of social security systems. As a consequence of demographic change, generous PAYG funded social security systems are under pressure in most industrialized countries. It was therefore seen as conventional wisdom among academic researchers to shift systems towards more prefunding. In the light of the recent crisis, does this conventional wisdom require reconsideration?
Against this background, the present research project addresses three central research questions: What are the effects of demographic change on wages, asset returns and welfare in a world with profound aggregate risk? What are the welfare effects of Pay- As-You-Go (PAYG) financed social security systems given that contributions are distortionary but, at the same time, social security provides partial insurance for missing markets and improves intergenerational sharing of aggregate risks? Which policy measures should be taken in response to (extreme) aggregate shocks, i.e., what is the optimal design of the PAYG component of social security?
- Harenberg, D. and A. Ludwig (2014): Social Security and the Interactions between Aggregate and Idiosyncratic Risk, Working Paper.
- Geppert, C. (2015a): On the Distributional Implications of Demographic Change, Manuscript.
Work in Progress:
- Geppert, C. and A. Ludwig (2015): Risky Human Capital, Aging and the Equity Premium, Manuscript.
- Geppert, C. (2015b): Computing Transitional Dynamics in Heterogeneous Agent Models with Aggregate Risk by Parameterized Laws of Motion, Manuscript.
- Harenberg, D. and A. Ludwig (2014): On the Welfare Effects of Social Security in an Analytically Tractable Overlapping Generations Model with Aggregate and Idiosyncratic Risk, Manuscript.
- Harenberg, D., A. Ludwig and J. Maus (2014): Is Social Security a Good Thing when the Correlation of Wages and Returns is Low?, Manuscript.