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How Well Does the US Social Insurance System Provide Social Insurance?

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Abstract

This paper answers the question posed in the title within a model where agents receive idiosyncratic, wage-rate shocks that are privately observed. When the model social insurance system is comprised by the US social security and income tax system, then the maximum ex-ante welfare gain to improved insurance is equivalent to a 12.3 percent increase in consumption. We determine the reasons behind this large welfare gain. We also analyze two parametric reforms of the model social insurance system. One reform increases welfare very little, whereas the other achieves nearly all of the maximum possible welfare gain. Classification-JEL Codes: D80, D90, E21

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Bibliographic Info

Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~06-06-11.

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Date of creation: 11 Jun 2006
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Handle: RePEc:geo:guwopa:gueconwpa~06-06-11

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Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Phone: 202-687-6074
Fax: 202-687-6102
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Web page: http://econ.georgetown.edu/

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Postal: Marcia Suss Administrative Officer Georgetown University Department of Economics Washington, DC 20057-1036
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Web: http://econ.georgetown.edu/

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Keywords: Social Insurance; Social Security; Idiosyncratic Shocks; Private Information;

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References

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