101-2011-L16

101-2011-L16 - Econ101 Lecture16 SocialSecurity Whattoread...

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Econ 101 Lecture 16 Social Security
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What to read n Today: chapter 9, pages 327-334 n Next time (next Wednesday): Chapter 9,  pages 313-326 n PS5 will be posted today, due next  Wednesday
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Social Security (SS) n Social Security offers an example in  which the Ricardian equivalence fails if  the government redistributes wealth  across generations n Two Types of Social Security programs: n PAYG (pay-as-you-go) n Fully funded social security
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Transfers  
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PAYG Social Security n 2 periods/generations: young and old n N  old people,  N'  young people: n Government introduces SS at some “time  T ”: n Benefit for the old:  b n Taxes on the young:  t n System requires: N n N ) 1 ( + = t N Nb ' =
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PAYG for Consumers Who Are Old in  Period  T
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PAYG for Consumers Born in Period  T  and Later
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PAYG for Consumers Born in  Period  T  and Later n Change in wealth depends on  r  and  n n Better off if  n > r n Worse off if  n < r ) 1 )( 1 ( 1 1 1 r n r n b r y y r b y n b y we + + - + + + = + + + + - =
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101-2011-L16 - Econ101 Lecture16 SocialSecurity Whattoread...

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