Social security and future generations

Abstract

We survey the effects of social security in the form of mandatory public pension programs on the intergenerational distribution of tax burdens, income, various risks and welfare. The first part considers basic theoretical concepts and highlight how the intergenerational effects of social security hinge on three types of major mechanisms: i) Defined benefit vs. defined contribution, ii) pay-as-you-go financing vs. funding and iii) the strength of the tax-benefit link of the program. The second part of the survey considers advances in the large literature that offer quantitative assessments of social security programs and reform proposals by means of numerical overlapping generations models. In both parts of the survey we distinguish between deterministic models and models that incorporate various stochastic elements.