ECONOMIC RAMIFICATIONS OF SOCIAL SECURITY: THEORETICAL AND EMPIRICAL ANALYSIS

The theoretical and the empirical analysis of the economic effects of social security will not always produce ambiguous results. The present study, which deals with the impact of social security on capital accumulation and the incidence of a social security payroll tax, supports the above statement. The theoretical analysis of the present study shows that the optimum method of financing social security, in a life-cycle growth model, depends on the relationship between the rate of interest and the rate of population growth. The theoretical analysis of this study also discussed the implication of private myopia and the consequences of maximizing a "paternalistic" rather than an "individualistic" utility for a representative individual. Finally, the incidence of social security payroll tax is theoretically examined in a partial as well as in a general equilibrium context. Conditions under which labor may bear "less than" or "greater than" 100 percent of the tax are examined too. In the empirical analysis, it is shown that the impact of social security and pension on aggregate private saving is inconclusive. However, with respect to the incidence of social security payroll tax, the present study supports the idea that the burden of the tax will be borne by labor and capital as well. This result is obtained by applying a "partial" tax on labor in the corporate sector of Indian economy as a representative of the developing countries as well as by applying econometric models to the United States economy as a representative of the developed countries.