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Improving the Equity-Efficiency Trade-Off: Mandatory Savings Accounts for Social Insurance

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  • A. Lans Bovenberg

    (Tilburg University)

  • Peter Birch Sørensen

    (Economic Policy Research Unit, Institute of Economics, University of Copenhagen)

Abstract

In the modern welfare state a substantial part of an individual’s tax bill is transferred back to the same individual taxpayer in the form of social transfers. This provides a rationale for financing part of social insurance through mandatory savings accounts. We analyze the behavioral and welfare effects of compulsory savings accounts in an intertemporal model with uncertainty, endogenous involuntary unemployment and retirement decisions, credit constraints, and heterogeneous agents. We show that the introduction of (early) retirement and unemployment accounts generates a Pareto improvement by enabling the government to provide lifetime income insurance and liquidity insurance ina more effcient manner.

Suggested Citation

  • A. Lans Bovenberg & Peter Birch Sørensen, "undated". "Improving the Equity-Efficiency Trade-Off: Mandatory Savings Accounts for Social Insurance," EPRU Working Paper Series 03-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Aug 2003.
    • Handle: RePEc:kud:epruwp:03-07
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    Cited by:

    1. Brown, Alessio J.G. & Orszag, J. Michael & Snower, Dennis J., 2008. "Unemployment accounts and employment incentives," European Journal of Political Economy, Elsevier, vol. 24(3), pages 587-604, September.
    2. A. Bovenberg & Martin Hansen & Peter Sørensen, 2008. "Individual savings accounts for social insurance: rationale and alternative designs," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(1), pages 67-86, February.
    3. A. Lans Bovenberg & Peter Birch Sørensen, "undated". "Optimal Taxation and Social Insurance in a Lifetime Perspective," EPRU Working Paper Series 06-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    4. Goerke, Laszlo, 2007. "Unemployment Insurance Savings Accounts and Collective Wage Determination," IZA Discussion Papers 3141, Institute of Labor Economics (IZA).
    5. Hans Fehr & Fabian Kindermann, 2010. "Pension Funding and Individual Accounts in Economies with Life-cyclers and Myopes," CESifo Economic Studies, CESifo, vol. 56(3), pages 404-443, September.
    6. Egbert Jongen, 2009. "An analysis of individual accounts for the unemployment risk in the Netherlands," CPB Document 186, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Ruud de Mooij, 2004. "Towards efficient unemployment insurance in the Netherlands," CPB Memorandum 100, CPB Netherlands Bureau for Economic Policy Analysis.
    8. Rubén Castro & Michael Weber & Gonzalo Reyes, 2018. "A policy for the size of individual unemployment accounts," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-11, December.
    9. Egbert Jongen, 2009. "An analysis of individual accounts for the unemployment risk in the Netherlands," CPB Document 186.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    10. Stefan Groot & Henri de Groot, 2011. "Wage inequality in the Netherlands: Evidence, trends and explanations," CPB Discussion Paper 186.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Rubén Castro, 2023. "Optimal unemployment accounts based on observable parameters," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 48(2), pages 260-270, September.
    12. Peter Birch Sørensen, 2015. "Reforming Public Service Provision: What have we learned?," EPRU Working Paper Series 2015-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    13. Bovenberg, A.L. & Hansen, M. & Sorensen, P.B., 2008. "Individual savings accounts for social insurance : Rationale and alternative designs," Other publications TiSEM 72e236b0-ad63-4bea-a314-6, Tilburg University, School of Economics and Management.
    14. Bernd Genser & Robert Holzmann, 2020. "Are Dutch Old-Age Pensions Taxed Fairly and Efficiently?," CESifo Working Paper Series 8444, CESifo.
    15. Peter Birch Sørensen & Martin Ino Hansen & A. Lans Bovenberg, 2006. "Savings Accounts and the Life-Cycle Approach to Social Insurance," EPRU Working Paper Series 06-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    16. Ruud de Mooij, 2004. "Towards efficient unemployment insurance in the Netherlands," CPB Memorandum 100.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Gumus, Erdal, 2008. "Türk Sosyal Güvenlik Sisteminin Değerlendirilmesi ve Sosyal Güvenlik Kurumlarının Finansal Geleceği [An Evaluation of Turkish Social Security Reform Process and Its Financial Future]," MPRA Paper 42160, University Library of Munich, Germany.

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