Home Production and Social Security Reform

Michael Dotsey, Wenli Li, Fang Yang
2012 Social Science Research Network  
This paper incorporates home production into a dynamic general equilibrium model of overlapping generations with endogenous retirement to study Social Security reforms. As such, the model di¤erentiates both consumption goods and labor e¤ort according to their respective roles in home production and market activities. Using a calibrated model, we conduct a policy experiment where we eliminate the current pay-as-you-go Social Security System and study the steady state impact. We ...nd that the
more » ... e ...nd that the experiment has important implications for labor supply as well as consumption decisions and that these decisions are in ‡uenced by the presence of a home production technology. Comparing our economy to a onegood economy without home production, the welfare gains of eliminating Social Security are magni...ed signi...cantly. We further demonstrate that the qualitative results hold with the less extreme policy reform where we delay the eligible Social Security bene...ts claimant age by four years. These policy analyses suggest the importance of modeling home production and distinguishing between both time use and consumption goods depending on whether they are involved in market or home production. JEL Classi...cations: E21, E62, H55
doi:10.2139/ssrn.2006482 fatcat:xwi3bamr3nb3fg5q7wm4l2u74e