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Optimal Social Security Design

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Author Info
Miles, David K
Sefton, James

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Abstract

This Paper considers the optimal design of public pension provision for the retired and income support for those of working age. We consider social security systems that differ in terms of the level of benefits, degree of means testing and the nature of contributions. We aim to find which system maximises the expected utility of agents behind an initial veil of ignorance about their future labour productivity. We also explore whether systems which differ from the (ex-ante) optimal one could be reformed. We ask whether agents who already know what their productivity is would vote for a move towards a system that they would have found optimal from behind a veil of ignorance about their own position on the wages ladder. We also consider which systems could be sustained in an economy where reform is decided by majority voting. We find a substantial role for means testing in optimal welfare systems. We also find the possibility of multiple equilbria in welfare systems.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3290.

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Date of creation: Mar 2002
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Handle: RePEc:cpr:ceprdp:3290

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Related research
Keywords: optimal taxes; pensions; social security;

Find related papers by JEL classification:
H10 - Public Economics - - Structure and Scope of Government - - - General
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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References listed on IDEAS
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.:
  1. Robert C. Merton, 1981. "On the Role of Social Security as a Means for Efficient Risk-Bearing in an Economy Where Human Capital Is Not Tradeable," NBER Working Papers 0743, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. J. Gruber & A. Yelowitz, . "Public Health Insurance and Private Savings," Institute for Research on Poverty Discussion Papers 1135-97, University of Wisconsin Institute for Research on Poverty. [Downloadable!]
    Other versions:
  3. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 3-95, Wharton School Rodney L. White Center for Financial Research.
    Other versions:
  4. Jaysri Dutta & J.A. Sefton and & M.R. Weale, 1997. "Income distribution and income dynamics in the United Kingdom," NIESR Discussion Papers 116, National Institute of Economic and Social Research.
    Other versions:
  5. Robert Moffitt, 2002. "Economic Effects of Means-Tested Transfers in the U.S," NBER Chapters, in: Tax Policy and the Economy, Volume 16, pages 1-36 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  6. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Creedy, J., 1995. "Means-Tested Versus Universal Transfers," Department of Economics - Working Papers Series 455, The University of Melbourne.
  8. Powers, Elizabeth T., 1998. "Does means-testing welfare discourage saving? evidence from a change in AFDC policy in the United States," Journal of Public Economics, Elsevier, vol. 68(1), pages 33-53, April. [Downloadable!] (restricted)
  9. Robert C. Merton, 1983. "On the Role of Social Security as a Means for Efficient Risk Sharing in an Economy Where Human Capital Is Not Tradable," NBER Chapters, in: Financial Aspects of the United States Pension System, pages 325-358 National Bureau of Economic Research, Inc. [Downloadable!]
  10. Besley, Timothy, 1990. "Means Testing versus Universal Provision in Poverty Alleviation Programmes," Economica, London School of Economics and Political Science, vol. 57(225), pages 119-29, February. [Downloadable!] (restricted)
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  13. Feldstein, Martin, 1995. "College Scholarship Rules and Private Saving," American Economic Review, American Economic Association, vol. 85(3), pages 552-66, June. [Downloadable!] (restricted)
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  14. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier. [Downloadable!] (restricted)
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  16. Breyer, Friedrich, 1994. "The political economy of intergenerational redistribution," European Journal of Political Economy, Elsevier, vol. 10(1), pages 61-84, May. [Downloadable!] (restricted)
  17. Feldstein, Martin S, 1987. "Should Social Security Benefits Be Means Tested?," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 468-84, June. [Downloadable!] (restricted)
  18. Henning Bohn, 1999. "Social Security and Demographic Uncertainty: The Risk Sharing Properties of Alternative Policies," NBER Working Papers 7030, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309. [Downloadable!] (restricted)
  20. David Neumark & Elizabeth Powers, 1997. "The Effect of Means-Tested Income Support for the Elderly on Pre-Retirement Saving: Evidence from the SSI Program in the U.S," NBER Working Papers 6303, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  21. Martin Feldstein & Elena Ranguelova & Andrew Samwick, 1999. "The Transition to Investment-Based Social Security when Portfolio Returns and Capital Profitability are Uncertain," NBER Working Papers 7016, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  22. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Oxford University Press, vol. 13(3), pages 373-88, September.
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Cited by:
(explanations, 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.)

  1. Francisco Gomes & Alexander Michaelides, 2004. "Aggregate Implications Of Defined Benefit And Defined Contribution Systems," Working Papers, Center for Retirement Research at Boston College 2003-16, Center for Retirement Research. [Downloadable!]
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