This proposal involves the establishment of ‘welfare accounts’ for every person in a country. There are four accounts: a retirement account (covering pensions), an unemployment account (covering unemployment support), a human capital account (covering education and training), and a health account (covering insurance against sickness and disability). Unlike current welfare state systems – where welfare services are financed predominantly out of general taxes – people would make ongoing, mandatory contributions to each of these welfare accounts. The balances in these accounts would cover people’s major welfare needs, with the government setting mandatory minimum contribution rates and maximum withdrawal rates. The government would operate within two budgetary systems: one in which non-welfare expenditures are financed through the existing array of taxes; and another in which public-sector expenditures on welfare services are financed through payments from people’s welfare accounts. The government could redistribute income across people’s welfare accounts, but these redistributions would be constrained to those of the balanced-budget variety: total (economy-wide) taxes on each of the welfare accounts would be equal to total transfers into each of accounts. The public and private sectors would provide welfare services on an equal footing, setting prices for these services and competing with one another for the custom of the welfare account holders. We argue that moving from current welfare state systems to a welfare account system would play an important role in reducing unemployment, encouraging labour force participation, promoting skills, reducing governments’ budgetary pressures, cushioning people against economic risk, ensuring efficient provision of health and education services, providing social safety nets and redistributing incomes more efficiently.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
1674.
Find related papers by JEL classification: E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies H41 - Public Economics - - Publicly Provided Goods - - - Public Goods H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets I22 - Health, Education, and Welfare - - Education - - - Educational Finance I28 - Health, Education, and Welfare - - Education - - - Government Policy I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy
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