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Improving the Equity-Efficiency Trade-Off: Mandatory Savings Accounts for Social Insurance

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  • A. Lans Bovenberg

    ()

  • Peter Birch Sørensen

    ()

Abstract

In the modern welfare state a substantial part of an individual's tax bill is transferred back to the same individual taxpayer in the form of social transfers. This provides a rationale for financing part of social insurance through mandatory savings accounts. We analyze the behavioral and welfare effects of compulsory savings accounts in an intertemporal model with uncertainty, involuntary unemployment, endogenous retirement decisions, credit constraints, and heterogeneous agents. We show that the introduction of (early) retirement and unemployment accounts generates a Pareto improvement by enabling the government to provide lifetime income insurance and liquidity insurance in a more efficient manner.

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 11 (2004)
Issue (Month): 4 (08)
Pages: 507-529

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Handle: RePEc:kap:itaxpf:v:11:y:2004:i:4:p:507-529

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Web page: http://www.springerlink.com/link.asp?id=102915

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  1. Martin Feldstein & Daniel Altman, 2007. "Unemployment Insurance Savings Accounts," NBER Chapters, in: Tax Policy and the Economy, Volume 21, pages 35-64 National Bureau of Economic Research, Inc.
  2. Hans-Werner Sinn, 2000. "Why a Funded Pension System is Useful and Why It is Not Useful," NBER Working Papers 7592, National Bureau of Economic Research, Inc.
  3. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(2), pages 229-64, May.
  4. BELAN, Pascal & PESTIEAU, Pierre, 1997. "Privatizing social security: a critical assessment," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1997084, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Orszag, Mike & Snower, Dennis J., 1997. "Expanding the Welfare System: A Proposal for Reform," CEPR Discussion Papers 1674, C.E.P.R. Discussion Papers.
  6. Brunner, Johann K., 1996. "Transition from a pay-as-you-go to a fully funded pension system: The case of differing individuals and intragenerational fairness," Journal of Public Economics, Elsevier, vol. 60(1), pages 131-146, April.
  7. Joseph Stiglitz & Jungyoll Yun, 2002. "Integration of unemployment insurance with retirement insurance," Discussion Papers, Columbia University, Department of Economics 0203-04, Columbia University, Department of Economics.
  8. Fölster, Stefan & Gidehag, Robert & Orszag, Mike & Snower, Dennis J., 2002. "Assessing Welfare Accounts," IZA Discussion Papers 533, Institute for the Study of Labor (IZA).
  9. Homburg, Stefan, 1990. "The Efficiency of Unfunded Pension Schemes," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 640-647.
  10. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-21, May.
  11. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 44-62, February.
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Cited by:
  1. Ruud de Mooij, 2004. "Towards efficient unemployment insurance in the Netherlands," CPB Memorandum, CPB Netherlands Bureau for Economic Policy Analysis 100, CPB Netherlands Bureau for Economic Policy Analysis.
  2. Brown, Alessio J G & Orszag, Mike & Snower, Dennis J., 2006. "Unemployment Accounts and Employment Incentives," CEPR Discussion Papers 5692, C.E.P.R. Discussion Papers.
  3. A. Lans Bovenberg & Peter Birch Sørensen, . "Optimal Taxation and Social Insurance in a Lifetime Perspective," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 06-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  4. Egbert Jongen, 2009. "An analysis of individual accounts for the unemployment risk in the Netherlands," CPB Document, CPB Netherlands Bureau for Economic Policy Analysis 186, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Peter Birch Sørensen & Martin Ino Hansen & A. Lans Bovenberg, 2006. "Savings Accounts and the Life-Cycle Approach to Social Insurance," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 06-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.

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