Growth and social security

This paper examines the impact of social security on economic growth in the presence of endogenous technical progress. It is shown that, in general, the presence of a pay-as-you-go social security lowers the growth rate. Hence, the introduction of social security is not Pareto-improving, contrary to the standard overlapping generations model, where it can be Pareto-improving if the economy is inefficient. Under a fully-funded social security system, however, growth rates are no longer negatively affected.