Social Security: Universal vs. Earnings-Dependent Benefits
AbstractI compare the welfare implications of implementing Bismarckian and Beveridgean social security systems. In an overlapping generations environment with intragenerational homogeneity, agents can be better off with a system with universal benefits than with a comparable system with earnings-dependent benefits because the latter generates a stronger decrease in net wages. Once I allow for intragenerational skill heterogeneity, agents are on average better off with the more redistributive universal benefits system. I then let agents vote for the replacement rates in a democratic process. In the absence of intragenerational heterogeneity, a larger social security system is implemented when benefits are earnings-dependent than when they are universal resulting in a larger decrease in net wages; this makes young agents worse o¤ with earnings-dependent benefits. In the presence of intragenerational skill heterogeneity, the reverse occurs and agents fare on average better in the long-run when benefits are earnings-dependent. However, because of its redistributional effects, agents born at the time of implementation are on average better o¤ with an universal benefits system.
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Bibliographic InfoPaper provided by University of Delaware, Department of Economics in its series Working Papers with number 11-14.
Length: 55 pages
Date of creation: 2011
Date of revision:
Publication status: Forthcoming in Economica
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More information through EDIRC
social security; universal benefits; earnings-dependent benefits; Bismarckian social security system; Beveridgean social security system; voting; welfare.;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-08-22 (Economics of Ageing)
- NEP-ALL-2011-08-22 (All new papers)
- NEP-DGE-2011-08-22 (Dynamic General Equilibrium)
- NEP-LAB-2011-08-22 (Labour Economics)
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