A Note on Social Security and Public Debt

In a simple stochastic overlapping generation model, individuals work when young and retire when old, generations’ productivity is affected by a serially uncorrelated random shock, and fiat money and nominal public debt are the only storable assets. In this setting, we show that social security programs featured by a constant contribution rate and budget-balance in each period, as common in the literature, are Pareto-dominated by programs allowing for budget unbalance, compensated by variations of the outstanding nominal public debt.