INCOME-DISTRIBUTION AND EFFICIENCY - THE ROLE OF SOCIAL-SECURITY

This paper is concerned with the way in which a social security tax/tr ansfer system acts to redistribute income within and between generatio ns. Our findings suggest that there are two motives for introducing a social security scheme: First, is the reduction of income inequality, and second, is the diminution of economic inefficiency caused by insti tutional constraints to negative bequests. When fertility is endogenou s and under general preferences and human capital/earnings functions, we find that government intervention to introduce a combined inequalit y-reducing social security tax/transfer system is always socially welf are improving, despite the fact that income taxation distorts decision s.