Demography and Uncertainty in Economic Growth: An Application to Social Security

The aim of this paper is to study the impact on economic growth of public pension systems, both funded and unfunded, under different demographic scenarios with a competitive economy and a fixed labor supply. An OLG growth model is used with realistic demography, in which each individual can be traced throughout her lifecycle, by using a longitudinal accounting framework. Under this setup, I find that both funded and unfunded pension systems can achieve the same steady state, either the «modified golden rule» or the «golden rule,» as long as the population increases. Nonetheless, the dynamic transition of each social security system to this steady state differs. This result shows that when labor supply is inelastic public pension systems do not necessarily alter the capital stock in the long run.