Abstract
This paper investigates the consequences of changes in a small open economy's unfunded social security system for its net foreign asset position. We apply Blanchard's finite horizon framework and show how an increase in the social security system's benefit rate is likely to lead to foreign indebtedness, even when induced retirement is allowed for.
Similar content being viewed by others
References
Abel, A.B. (1985) “Precautionary Saving and Accidential Bequests,”American Economic Review 75, 777–791.
Auerbach, A. and L.J. Kotlikoff (1983) “An Examination of Empirical Tests of Social Security Savings.” In E. Helpman (ed),Social Policy Evaluation: An Economic Perspective. New York.
Blanchard, O.J. (1985) “Debt, Deficits and Finite Horizons,”Journal of Political Economy 93, 223–247.
Blanchard, O.J. and S. Fischer (1989)Lectures on Macroeconomics. Cambridge, MA.
Feldstein, M.J. (1974) “Social Security, Induced Retirement, and Aggregate Capital Accumulation,”Journal of Political Economy 82, 905–926.
Hubbard, R.G. and K.L. Judd (1986) “Liquidity Constraints, Fiscal Policy, and Consumption,”Brookings Papers on Economic Activity No. 1, 1–51.
Hubbard, R.G. and K.L. Judd (1987) “Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints and the Payroll Tax,”American Economic Review 77, 630–646.
Kotlikoff, L.J. (1979), “Social Security and Equilibrium Capital Intensity,”Quarterly Journal of Economics 43, 233–254.
Kotlikoff, L.J. (1989)What Determines Savings, Cambridge, MA.
Nielsen, S.B (1991), “Social Security and Foreign Indebtedness in a Small Open Economy.” Working Paper, Institute of Economics, Copenhagen Business School.
Smith, R.S. (1990) “Factors Affecting Saving, Policy Tools and Tax Reform: A Review,”IMF Staff Papers 37, 1–70.
Yaari, M.E. (1965) “Uncertain Lifetime, Life Insurance, and the Theory of the Consumer,”Review of Economic Studies 32, 137–150.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Nielsen, S.B. Social security and foreign indebtedness in a small open economy. Open Econ Rev 5, 47–63 (1994). https://doi.org/10.1007/BF01000744
Issue Date:
DOI: https://doi.org/10.1007/BF01000744