Determining the optimal social security tax by the myopia approach and the overlap generational model (OLG) and simulating its effects on social security resources and expenses

Document Type : Research Paper

Authors

Faculty of Economics, University of Isfahan, Isfahan, Iran.

Abstract

Social security tax is a tax that is collected from employers and employees to finance the social security program. The purpose of this article is to determine the optimal social security tax in Iran's economy regarding to the level of myopia of people. Determining the optimal tax rate helps policy makers to better implement social security programs. To achieve this goal, are used to the overlap generation model (OLG) and PYG insurance payment method. The results of the model show that the optimal social security tax rate depends on factors such as people's mental discount rate (𝜌), degree of myopia (m) and the share of capital from production (α). Using the available data in Iran's economy, the optimal social security tax rate was calculated at different discount rates, and then the calculation results were compared with the existing rates. The results showed that the optimal tax rate is 0.34 at 𝜌=0.5, and this rate is near to the existing rate in Iran's economy. The instantaneous response functions for two shocks of the optimal tax rate of social security (representing the resources of the social security system) and social security benefits (representing the expenses of the social security system) showed that the impact of these two shocks on the variables of production, savings, capital stock, old age consumption, Youth consumption, interest rate and government debt are completely different from each other.Also, the positive shock of the social security tax rate has a positive effect on social security expenses and resources.

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Journal of Economic Research (Tahghighat- E- Eghtesadi)
Volume 59, Issue 2
November 2024
Pages 253-279

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History

  • Receive Date: 15 January 2023
  • Revise Date: 19 April 2024
  • Accept Date: 12 November 2024

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