Essays on Overlapping Generations Models and Social Security

In this chapter, I introduce an Overlapping Generation (OLG) model where the Social Security Security system endowed with a Trust Fund. In economic literature, Social Security has traditionally been approximated as a “pay-as-you-go” (“PAYGO”) system, which fails to take into account the fact that, in reality, retirement benefits depend on the lifetime earnings of each retiree and the solvency of the Social Security fund itself. These factors are highly relevant for policy purposes because, based on current projections, Social Security will exhaust its trust fund by 2034, and will no longer be able to pay scheduled benefits to retirees.

Therefore, a model that incorporates these factors represents a significant innovation in the literature and

could serve as a guide for policy makers with regard to potential policy reforms. In Chapter 1, I successfully

develop the proposed model of Social Security, accounting for lifetime earning histories and the potential for bankruptcy of the fund in a stochastic environment.