This paper, in contrast to prior studies by Feldstein (19.74), Kotilkoff(1979).
Beach et al (1984) and others, attempts to provide a partialequilibrium approach for
evaluating the impact of social security oncorporate investment. The neoclassical
theory of investment witha CES production function is employed as the basic
econometricmodel of investment behavior and the cost of capital is
caculatedaccording to Auerbach (1979). The evaluation of the impact oninvestment
behavior of social security is then derived by reformulating the impact as a change in
the corporate income tax. The reformuation is essentially based on an application of
the EnvelopeTheorem to the profit function. Also. the impact of pensions onthe
investment in Taiwan manufacturing has been provided as aniUustriative example of
the approach.