Social Security Policy with Public Debt in an Aging Economy

This paper analyzes a social security policy with public debt in an overlapping generations growth model. In particular, the paper considers a situation in which population aging causes a heavy burden of social security payments where public debt is issued by the government to finance the payment. In the model presented below, an economy with an aging population may achieve two dynamically inefficient equilibria. Under certain conditions, the effects of pension reform and population aging on capital accumulation are entirely different between the two equilibria.