Limited asset market participation is a well-known stylized fact and a widespread phenomenon
even in developed economies. While existing models have already examined
the effects of social security and its reforms on welfare and inequality, little attention
has been devoted to the role of public pensions in the context of limited asset market
participation. I develop a quantitative overlapping generations general equilibrium
model where heterogenous agents face a financial friction limiting access ...
Limited asset market participation is a well-known stylized fact and a widespread phenomenon
even in developed economies. While existing models have already examined
the effects of social security and its reforms on welfare and inequality, little attention
has been devoted to the role of public pensions in the context of limited asset market
participation. I develop a quantitative overlapping generations general equilibrium
model where heterogenous agents face a financial friction limiting access to capital markets.
I examine how, in presence of the market imperfection, a public pay-as-you-go
system affects consumption and wealth inequality and compare the results with a standard
model that does not account for limited asset market participation. In a second
exercise, I study the implications, in terms of inequality, of an increase in the retirement
age in response to a population ageing shock. I find that limited asset participation is
important for the analysis of the impact of social security on overall inequality and on
inequality within age groups.
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