Generalised Social Security Finance in a Two‐Country World

This paper develops an overlapping generations model with generalised finance of social security in a two‐country world. Social security finance includes a pay‐as‐you‐go, a fully funded, and an optimal system as special cases. An increase in social security funding of country 1 increases capital, income and consumption per head in both countries. Also, it increases foreign assets in country 1 and foreign debt in country 2. The optimal level of social security funding is below the golden rule level. During adjustment an increase in funding has negative effects on country 1 and positive effects on country 2.