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Reforming social security: assessing the effects of alternative funding strategies

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  • Øystein Thøgersen

Abstract

Population ageing implies that the large pay-as-you-go social security programmes implemented in many OECD economies will run into severe financial problems. By means of a numerical overlapping generations model, this paper investigates the intergenerational welfare effects of a transition to funded security programmes. Such programmes imply permanent increases in the welfare of the young and unborn generations. It is demonstrated that the size of the welfare gains varies significantly between alternative funding strategies. A nonindividualized funding strategy characterized by increased government asset accumulation triggers considerable welfare gains through increased asset returns in the future. Even larger welfare gains may be realized by an individual funding strategy characterized by increased asset accumulation accompanied by an adoption of actuarial supplementary pensions (i.e. actuarial supplementary pensions combined with a fixed minimum pension) which reduces future tax distortions drastically.

Suggested Citation

  • Øystein Thøgersen, 2001. "Reforming social security: assessing the effects of alternative funding strategies," Applied Economics, Taylor & Francis Journals, vol. 33(12), pages 1531-1540.
    • Handle: RePEc:taf:applec:v:33:y:2001:i:12:p:1531-1540
    DOI: 10.1080/00036840010014436
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    References listed on IDEAS

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    1. Matsen, Egil & Thogersen, Oystein, 2004. "Designing social security - a portfolio choice approach," European Economic Review, Elsevier, vol. 48(4), pages 883-904, August.
    2. Rolf Aaberge & Ugo Colombino & Erling Holmøy & Birger Strøm & Tom Wennemo, 2004. "Population ageing and fiscal sustainability: An integrated micro-macro analysis of required tax changes," Discussion Papers 367, Statistics Norway, Research Department.
    3. Dennis Fredriksen & Kim Massey Heide & Erling Holmøy & Ingeborg Foldøy Solli, 2005. "Macroeconomic effects of proposed pension reforms in Norway," Discussion Papers 417, Statistics Norway, Research Department.

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