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Publicado en: Artículo en revista académica

On Endogenous Social Security Crisis

Rodrigo Cerda.

Journal of Population Economics, 18(3): 509-517, 2005.

This paper addresses the causes and the dynamics of the pay-as-you-go social security financial crisis. Its main hypothesis is a self-reinforcing circle between the social security system, fertility rate and labor supply. We argue that changes on the pay-asyou- go social security tax rate may induce a subsequent demographic transition and a decrement in labor supply. Theses effects are the basis to an unsustainable system, as fewer individuals pay taxes but more individuals receive social security benefits over time. A direct policy implication is that governments require to adjust either the tax rate rate or the benefits of the social security system. Further, we show that when the government maintains its promised payments of benefits, the social security tax rate will follow a unit-root process and will grow steadily. We test the predictions over fertility rate and labor supply by using the case of Chile as a natural experiment. The empirical analysis shows strong support for our hypothesis concerning fertility rate and labor supply. Later, we show evidence of a unit-root process in the social security tax rate by using a set of OECD countries.


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