The Extension of Social Security Coverage in Developing Countries

We investigate the dynamic general equilibrium effects of introducing a social assistance program to elderly informal sector workers in developing countries. We find that the extension of such ldquo;retirement benefitsrdquo; in environments with lacking private sector risk-sharing mechanisms results in welfare increases and relatively minor efficiency losses. Our results suggest that welfare gains attributed to the insurance and redistribution function of the social assistance program dominate welfare losses from distortionary effects of pension payments