Reforming Social Security: Assessing the Effects of Alternative Funding Strategies in a Small Open Economy

Population ageing implies that the large pay-as-you-go social security programs implemented in many OECD economies will run into severe financial problems. By means of a numerical overlapping generations model, this paper investigates the intergenerational welfare effects of a transition to funded programs. Such programs imply permanent increases in the welfare of the young and unborn generations. We demonstrate that the size of the welfare gains varies significantly between alternative funding strategies.