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Evaluating pay-as-you-go social security systems

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  • Andreas Bachmann
  • Kaspar W thrich

Abstract

This paper proposes a method for the welfare analysis of pay-as-you-go social security systems. We derive a formula for the welfare consequences of a permanent marginal change in the payroll tax rate that is valid under weak assumptions about the deep structure of the economy. Our approach requires neither a full specification of preferences and technology, nor knowledge of the individual savings behavior. Instead of parameterizing and calibrating the deep model structure, we implement our formula based on reduced form estimates of a VAR model. We apply our method to evaluate the social security system in the United States.

Suggested Citation

  • Andreas Bachmann & Kaspar W thrich, 2015. "Evaluating pay-as-you-go social security systems," Diskussionsschriften dp1507, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp1507
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    More about this item

    Keywords

    social security system; overlapping generations; optimal payroll taxes; welfare analysis; reduced form VAR;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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