SOCIAL-SECURITY AND ENDOGENOUS GROWTH

This paper examines the effects of social security on the steady-state growth of per capita income in an endogenous growth model in which agents care about their own consumption, the number of children, and the welfare of each child. It shows that an unfunded program may simulate growth by reducing fertility and increasing the ratio of human capital investment per child to per family income when bequests are positive. Also, it may cause faster growth than funded programs, especially when receipts from funded programs are independent of contributions. When voluntary saving is positive, funded social security is neutral if receipts are linked to contributions, and most likely depresses growth if receipts are independent of contributions.