Social security and intergenerational equity

This paper considers the implications of social security for intergeneratio nal equity. It shows that a balanced-budget unfunded system can be optimal even in a dynamically efficient economy without uncertainty and externaliti es. The relevant criteria for the optimality of the public transfer program are equity among generations and time consistency. The scheme can survive adverse shocks if the well-being of the elderly at each point in time is su fficiently valued.