Working Paper

The welfare effects of pay-as-you-go retirement programs: the role of tax and benefit timing

Abstract: It is well known that pay-as-you-go retirement programs reduce steady-state welfare and the capital stock in dynamically efficient OLG economies. The common two-period OLG model obscures, however, the dependence of these effects on the ages at which taxes are paid and benefits are received. Program changes that shift taxes to older workers or benefits to younger retirees have effects similar to reductions in program size, yielding steady-state welfare gains and increases in capital accumulation while imposing transition costs on current generations. This analysis has policy implications for both tax and benefit timing.

Keywords: Social security; Fiscal policy; Taxation;

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Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 2006

Number: 0602

Pages: 27 pages

Note: Published as: Viard, Alan D. (2007), "The Welfare Effects of Pay-as-You-Go Retirement Programs: The Role of Tax and Benefit Timing," Contemporary Economic Policy 25 (2): 282-292.