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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.

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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 03-07.

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Length: 42 pages
Date of creation:
Date of revision: Aug 2003
Handle: RePEc:kud:epruwp:03-07

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  1. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-21, May.
  2. Hans-Werner Sinn, 2000. "Why a Funded Pension System is Useful and Why It is Not Useful," NBER Working Papers 7592, National Bureau of Economic Research, Inc.
  3. Homburg, Stefan, 1990. "The Efficiency of Unfunded Pension Schemes," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 640-647.
  4. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
  5. BELAN, Pascal & PESTIEAU, Pierre, 1997. "Privatizing social security: a critical assessment," CORE Discussion Papers 1997084, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Joseph Stiglitz & Jungyoll Yun, 2002. "Integration of Unemployment Insurance with Retirement Insurance," NBER Working Papers 9199, National Bureau of Economic Research, Inc.
  7. Brunner, Johann K., 1996. "Transition from a pay-as-you-go to a fully funded pension system: The case of differing individuals and intragenerational fairness," Journal of Public Economics, Elsevier, vol. 60(1), pages 131-146, April.
  8. Martin Feldstein & Daniel Altman, 1998. "Unemployment Insurance Savings Accounts," NBER Working Papers 6860, National Bureau of Economic Research, Inc.
  9. Orszag, Mike & Snower, Dennis J., 1997. "Expanding the Welfare System: A Proposal for Reform," CEPR Discussion Papers 1674, C.E.P.R. Discussion Papers.
  10. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 44-62, February.
  11. Fölster, Stefan & Gidehag, Robert & Orszag, Mike & Snower, Dennis J., 2002. "Assessing Welfare Accounts," IZA Discussion Papers 533, Institute for the Study of Labor (IZA).
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Cited by:
  1. Alessio J. G. Brown & J. Michael Orszag & Dennis J. Snower, 2006. "Unemployment Accounts and Employment Incentives," Kiel Working Papers 1274, Kiel Institute for the World Economy.
  2. Bovenberg, A.L. & Sorensen, P.B., 2007. "Optimal Taxation and Social Insurance in a Lifetime Perspective," Discussion Paper 2007-14, Tilburg University, Center for Economic Research.
  3. 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.
  4. 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.
  5. Ruud de Mooij, 2004. "Towards efficient unemployment insurance in the Netherlands," CPB Memorandum 100, CPB Netherlands Bureau for Economic Policy Analysis.

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