The Dynamic Effects of Social Security on Individual Consumption, Wealth and Welfare

This paper presents a theoretical investigation of the dynamic effects of social security on individual consumption, wealth and welfare. The framework of analysis is Yaari's (1965) life–cycle model of saving with uncertain lifetime and borrowing constraint. A simple uniform social security system as well as an actuarially fair and fully funded social security system is considered. The presence of terminal wealth depletion is shown to play a pivotal role not only in the derivation of the results but also in the outcome of the analysis.