Effects of Social Security Reform

In a two sector framework, Partha Sen has shown that reduced social security contributions in a pay-as-you-go system that makes the steady state generations better off could make both the current generations worse off. This paradoxical result happens because the older generation receives less and they spend less (they spend all their income, this being the last period of their lives), causing a reduction in labour demand and a fall in wages. This (first order) fall in wages would usually dominate the (second order) gains from lower pay-roll taxes (the latter is of second order because the gain from a lower social security contribution this period has to be weighed against lower future receipts).

Mr Sen is currently working on social security reform in a trading world. If China were to introduce a pay-as-you-go system, how would Japan be affected? He is interested in both the trade and capital flow aspects of this question. Similarly, how is the rest of the world affected by a postponing of retirement in Europe?

Partha Sen started off as a straight open-economy macroeconomics researcher. Over time, in addition to macroeconomics, he branched out into international trade and environmental economics. His recent research is on modelling social security reform and on North-South models of climate change. In addition, he is also engaged in trying to evaluate the effects of climate change on food grain output (paddy and coarse cereals) in India.

Mr Sen is Professor of Economics at the Delhi School of Economics. His PhD is from the London School of Economics. He has taught at the LSE and the University of Illinois. He also held one-year positions at Bristol, Michigan, Hong University of Science Technology, the National University of Singapore and the Indian Statistical Institute. Mr Sen edited the Indian Economic Review and is on the editorial board of several journals, including the Singapore Economic Review and Annals of Financial Economics.