Discussion Paper

No. 2018-5 | January 15, 2018
A parametric social security system with skills heterogeneous agents


The purpose of this study is to explore the effects of exogenous social security system parameters on welfare. The set up is an overlapping generations economy, with skills heterogeneity, which distinguishes consumers between high and low skilled. The low-skilled receive an extra supplement pension. The social security system has three exogenous parameters: the benefits, the contributions, and the funding parameter. The author examines and compares the effects of these three exogenous social security parameters, first under inelastic and then under elastic labor supply, on individuals welfare. He finds that when labor supply is inelastic, the parameters affect differently the welfare of the high and the low-skilled, since for the latter, we must also take into account the indirect effects through the supplement pension provision. When labor supply is elastic, the effects of changes in the social security parameters on welfare are the same for both the high and the low skilled, as in the case of inelastic labor supply.

JEL Classification:

D11, E21, H55


  • Downloads: 75


Cite As

Fotini Thomaidou (2018). A parametric social security system with skills heterogeneous agents. Economics Discussion Papers, No 2018-5, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2018-5

Comments and Questions

Anonymous - Referee Report 1
January 22, 2018 - 08:57

see attached file