Social Security reform

the effect of investing in equities

Authors

  • Erick Elder College of Business Administration, University of Arkansas at Little Rock, Little Rock, AR 72207-1099, USA
  • Larry Holland College of Business Administration, University of Arkansas at Little Rock, Little Rock, AR 72207-1099, USA

DOI:

https://doi.org/10.1016/S1057-0810(00)00058-5

Keywords:

Asset pricing, Portfolio choice, General equilibrium, Social Security reform

Abstract

Several proposals have been developed to reform the Social Security System to ensure that it is fully funded. The investment of a portion of Social Security funds in equities has often been proposed as a means to avoid increasing payroll taxes. This paper develops a general equilibrium model to demonstrate that investing Social Security funds in equities will decrease the return on equities and increase interest rates on bonds, which also leads to an increase in general income taxes. Thus, investing Social Security funds in equities simply shifts a potential increase in payroll taxes to an increase in income taxes. © 2000 Elsevier Science Inc. All rights reserved.

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Published

2000-03-30

How to Cite

Elder, E., & Holland, L. (2000). Social Security reform: the effect of investing in equities. Financial Services Review, 9(1), 93–106. https://doi.org/10.1016/S1057-0810(00)00058-5

Issue

Vol. 9 No. 1 (2000): Financial Services Review

Section

New Original Submission

License

Copyright (c) 2000 JAI Press Inc.

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