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Home Production and Social Security Reform

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Abstract
This paper incorporates home production into a dynamic general equilibrium model of overlapping generations with endogenous retirement to study Social Secu- rity 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. We ?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 one-good economy without home production, the welfare gains of eliminating Social Security are magni?ed signi?cantly especially in the long run. These policy analyses suggest the importance of modeling home production and distinguishing between both time use and consumption goods de- pending on whether they are involved in market or home production.

Suggested Citation

  • Fang Yang & Michael Dotsey & Wenli Li, 2014. "Home Production and Social Security Reform," Departmental Working Papers 2014-02, Department of Economics, Louisiana State University.
    • Handle: RePEc:lsu:lsuwpp:2014-02
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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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