Abstract:
In this thesis I attempt to analyze the various effects New Zealand’s PAYG Social Security system has on economic growth and individual decision making process. In order to achieve this, I first examine the literature surrounding Social Security design and highlight the elements of economic theory which explain how PAYG social security system affects economic growth and how its effects might differ from that of a fully funded social security system. I proceed by constructing an ‘overlapping generations’ model (OLG) of New Zealand’s economy and then examine how the presence of the PAYG Social Security system can affect New Zealand’s long term economic growth and population. One of the more interesting features of New Zealand’s PAYG Social Security system is the fact that the benefits received by the retired individuals are paid out of general tax revenue, instead of being financed via a social security tax. This feature makes New Zealand’s Social Security system significantly different from the PAYG systems described in the literature and I attempt to explore this difference and its impact on New Zealand. The thesis concludes with a general discussion of the results of the analysis conducted and suggests a direction for future research.
