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Privatizing Social Security in the U.S. -- Comparing the Options

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  • Laurence J. Kotlikoff

    (NBER and Department of Economics, Boston University)

  • Kent Smetters

    (Wharton School, University of Pennsylvania)

  • Jan Walliser

    (International Monetary Fund)

Abstract

This paper uses a new version of the Auerbach-Kotlikoff model to consider alternative ways to privatize the U.S. Social Security system. The new model incorporates intra- and intergenerational heterogeneity and is closely calibrated to U.S. fiscal institutions. Three privatization issues are considered: financing the transition, participation rules, and progressivity. As shown, Social Security's privatization can substantially raise long-run living standards. But these gains come at the cost of welfare losses to transition generations and take a long time to materialize. The long-run poor have much to gain from privatization even absent an explicit redistribution mechanism. Finally, privatizations that give initial workers the option of remaining in the current system have particularly low transition costs and particularly favorable macroeconomic consequences. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1999.0068
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 2 (1999)
Issue (Month): 3 (July)
Pages: 532-574

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Handle: RePEc:red:issued:v:2:y:1999:i:3:p:532-574

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  1. Alan L. Gustman & Thomas L. Steinmeier, 1995. "Privatizing Social Security: First Round Effects of a Generic, VoluntaryPrivatized U.S. Social Security System," NBER Working Papers 5362, National Bureau of Economic Research, Inc.
  2. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October.
  3. Kotlikoff, Laurence J & Smetters, Kent A & Walliser, Jan, 1998. "Social Security: Privatization and Progressivity," American Economic Review, American Economic Association, vol. 88(2), pages 137-41, May.
  4. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, vol. 6(1), pages 83-114, June.
  5. Martin Feldstein, 1997. "Transition to a Fully Funded Pension System: Five Economic Issues," NBER Working Papers 6149, National Bureau of Economic Research, Inc.
  6. Steven J. Davis & Magnus Henrekson, 1997. "Explaining National Differences in the Size and Industry Distribution of Employment," NBER Working Papers 6246, National Bureau of Economic Research, Inc.
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