Social security, bequests, and social comparisons

Author(s)
Kirill Borissov, Andrei Kalk
Abstract

We examine the long-run impact of unfunded social security on capital stock and wealth inequality in an overlapping generations (OLG) model where newborn individuals differ in their inheritance. In our model, individuals' decisions are subject to social comparisons, which can lead to overspending on personal consumption and result in zero bequests left within poor families. In this scenario, unfunded social security increases long-run wealth inequality by redistributing wealth from poor to rich families, who always leave bequests. However, it increases long-run capital stock, too. We also show that when none or all of the families leave bequests in the long run, our model predicts negative and neutral effects of social security on capital accumulation, in line with the standard OLG models of Diamond and Barro. Thus, our results emphasize the need to account for heterogeneity in bequest behavior in the analysis of social security.

Organisation(s)
Department of Economics
External organisation(s)
European University at St. Petersburg
Journal
Journal of Public Economic Theory
Volume
26
ISSN
1097-3923
DOI
https://doi.org/10.1111/jpet.12698
Publication date
06-2024
Peer reviewed
Yes
Austrian Fields of Science 2012
502046 Economic policy, 502024 Public economy, 502018 Macroeconomics
Keywords
ASJC Scopus subject areas
Economics and Econometrics
Portal url
https://ucrisportal.univie.ac.at/en/publications/social-security-bequests-and-social-comparisons(e3e6ab0f-8aa8-4a71-87cd-402c41f7616a).html