Social Security Privatization: A Structure for Analysis
AbstractThis paper identifies the key economic issues that must be addressed in the debate over a privatized social security system. We examine a two-pillar plan. The first pillar would consist of a demogrant: a small indexed pension of the same dollar amount for all retirees who had contributed to the system over a full lifetime of work. The second pillar would consist of a fully-funded individual defined-contribution account, financed by payroll taxes, held in financial institutions, and directed by participants. We explore how such a system would affect the risks households face, how it would alter the distribution of income, and how it might influence household behavior, including incentives to work and save, and portfolio choices. We also examine macroeconomic issues: how the transition to a private plan would occur, and what the likely effects would be on national saving. We conclude that a two-pillar system offers several positive features, namely a reduction in political risk, an increase in household portfolio choice, and improved work incentives. Disadvantages include less redistributiveness and national risk sharing, and increased administrative costs.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 86 (1996)
Issue (Month): 2 (May)
Other versions of this item:
- Olivia S. Mitchell & Stephen P. Zeldes, 1996. "Social Security Privatization: A Structure for Analysis," NBER Working Papers 5512, National Bureau of Economic Research, Inc.
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
- Martin Feldstein, 1995. "Would Privatizing Social Security Raise Economic Welfare?," NBER Working Papers 5281, National Bureau of Economic Research, Inc.
- Salvador ValdÃ©s & Peter Diamond, . "Social Security Reforms in Chile," Documentos de Trabajo 161, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Laurence J. Kotlikoff, 1996.
"Privatization of Social Security: How It Works and Why It Matters,"
in: Tax Policy and the Economy, Volume 10, pages 1-32
National Bureau of Economic Research, Inc.
- Laurence J. Kotlikoff, 1995. "Privatization of Social Security: How it Works and Why it Matters," Boston University - Institute for Economic Development 66, Boston University, Institute for Economic Development.
- Laurence J. Kotlikoff, 1995. "Privatization of Social Security: How It Works and Why It Matters," NBER Working Papers 5330, National Bureau of Economic Research, Inc.
- Panis, C.W.A. & Lillard, L.A., 1996. "Socioeconomic Differentials in the Returns to Social Security," Papers 96-05, RAND - Labor and Population Program.
- Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
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