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Privatizing social security: a critical assessment

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Author Info

  • BELAN, Pascal

    (GREQAM, Université de la Méditerranée)

  • PESTIEAU, Pierre

    ()
    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium and CREPP, Université de Liège, Liège, Belgium and DELTA, Ecole Normale Supérieure, Paris, France)

Abstract

The purpose of this paper is to provide a critical evaluation of theoretical models showing that shifting from pay-as-you-go to funded social security schemes can be made Pareto-improving. Further, it argues that what often makes a reform toward funded schemes attractive is a number of additional features that could have been introduced as well in the unfunded social security system. The paper is organized in three main sections. The first presents a taxonomy of social security systems; this allows for showing that in privatization programs the issue is not just moving from unfunded to fully funded techniques, but also, and above all, individualizing the system is such a way that there is no more redistribution. The second shows that funded and pay-as-you-go schemes are perfectly equivalent as long as the payroll taxes paid during the period of inception of the pay-as-you-go scheme are duly invested. Finally, the third section presents two models of Pareto-improving social security reforms and discusses the assumptions on which they rely.

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File URL: http://alfresco.uclouvain.be/alfresco/download/attach/workspace/SpacesStore/218e782d-e049-43f8-8cf4-54decf68eb71/coredp_1997_84.pdf
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1997084.

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Date of creation: 01 Nov 1997
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Handle: RePEc:cor:louvco:1997084

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Related research

Keywords: social security; privatization; retiremen;

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