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The Risk of Social Security Benefit Rule Changes: Some International Evidence

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John McHale

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Abstract

Against a background of projections of sharply increasing elderly dependency rates, workers in the major industrial economies are apprehensive that their social security benefit entitlements will be cut before or after they retire, leaving them with inadequate retirement income. This paper looks at recent benefit rule changes in the G7 countries to see what can be learned about such political risk in PAYG pension systems. From this small sample, I find that projections of rising costs under current rules are inducing reforms, and that these reforms often have a major impact on the present discounted value of promised benefits for middle-aged and younger workers. Usually, however, the benefits of the retired and those nearing retirement are protected. The phasing in of benefit cuts raises the question as to why younger workers are willing to take significant cuts in their implicit wealth while protecting the currently old. One possible answer is explored through a simple model: these workers fear even larger cuts in their benefits if the tax burden on future workers rises too high.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7031.

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Date of creation: Mar 1999
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Handle: RePEc:nbr:nberwo:7031

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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. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
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  2. John Geanakoplos & Olivia S. Mitchell & Stephen P. Zeldes, 1998. "Social Security Money's Worth," Cowles Foundation Discussion Papers 1193, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  3. János Kornai & John McHale, 2000. "Is Post-Communist Health Spending Unusual?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 369-399, July. [Downloadable!] (restricted)
  4. Martin Feldstein & Andrew Samwick, 1998. "The Transition Path in Privatizing Social Security," NBER Chapters, in: Privatizing Social Security, pages 215-264 National Bureau of Economic Research, Inc. [Downloadable!]
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  5. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1.
  6. A. Javier Hamann, 1997. "The Reform of the Pension System in Italy," IMF Working Papers 97/18, International Monetary Fund.
  7. Richard Hemming, 1998. "Should Public Pensions be Funded?," IMF Working Papers 98/35, International Monetary Fund.
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  1. 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)
    Other versions:
  2. Whitehouse, Edward, 2000. "How Poor are the Old? A Survey of Evidence from 44 Countries," MPRA Paper 14177, University Library of Munich, Germany. [Downloadable!]
  3. Lindbeck, Assar, 2003. "Improving the Performance of the European Social Model - The Welfare State over the Life Cycle," Working Paper Series 587, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  4. Olovsson, Conny, 2004. "The Welfare Gains of Improving Risk Sharing in Social Security," Seminar Papers 728, Stockholm University, Institute for International Economic Studies. [Downloadable!]
  5. Jeff Dominitz & Charles F. Manski & Jordan Heinz, 2003. ""Will Social Security Be There For You?": How Americans Perceive Their Benefits," NBER Working Papers 9798, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Assar Lindbeck, 2002. "Pensions and Contemporary Socioeconomic Change," NBER Chapters, in: Social Security Pension Reform in Europe, pages 19-48 National Bureau of Economic Research, Inc. [Downloadable!]
  7. Queisser, Monika & Whitehouse, Edward, 2005. "Pensions at a glance: public policies across OECD countries," MPRA Paper 10907, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  8. Börsch-Supan, Axel, 2005. "Risiken im Lebenszyklus: Theorie und Evidenz," Sonderforschungsbereich 504 Publications 05-05, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
  9. Jeff Dominitz & Charles F. Manski & Jordan Heinz, 2002. "Social Security Expectations and Retirement Savings Decisions," NBER Working Papers 8718, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Martin Feldstein & Elena Ranguelova, 2000. "Accumulated Pension Collars: A Market Approach to Reducing the Risk of Investment-Based Social Security Reform," NBER Working Papers 7861, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Olovsson, Conny, 2004. "Social Security and the Equity Premium Puzzle," Seminar Papers 729, Stockholm University, Institute for International Economic Studies. [Downloadable!]
  12. John Y. Campbell & Yves Nosbusch, 2006. "Intergenerational Risksharing and Equilibrium Asset Prices," NBER Working Papers 12204, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Whitehouse, Edward, 2001. "Pension systems in 15 countries compared: the value of entitlements," MPRA Paper 14751, University Library of Munich, Germany. [Downloadable!]
  14. Lindbeck, Assar, 2001. "Pensions and Contemporary Socioeconomic Change," Working Paper Series 548, Research Institute of Industrial Economics. [Downloadable!]
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  15. John B. Shoven & Sita N. Slavov, 2006. "Political Risk Versus Market Risk in Social Security," NBER Working Papers 12135, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Henning Bohn, 2001. "Retirement Savings in an Aging Society: A Case for Innovative Government Debt Management," University of California at Santa Barbara, Economics Working Paper Series wp3-01, Department of Economics, UC Santa Barbara. [Downloadable!]
    Other versions:
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