Social security policies in an overlapping generations model: applications to the U.S. and China

Abstract

In this paper, I find a social security policy with intergenerational transfer may outperform in terms of welfare several balanced-budget alternatives as the economy undergoes a temporary demographic change. With the help of an overlapping generations model I quantify the effects of a demographic change on the economy in the steady state and along the transition path through numerical simulation. I calibrate the model to the U.S. to compare the various social security policy alternatives against fund accumulation in accommodating a population bulge. In addition, I calibrate the model to China to compare the various social security policy alternatives against intergenerational borrowing for the case of a population shrink.