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Privatizing Social Security: First-Round Effects of a Generic, Voluntary, Privatized U.S. Social Security System

In: Privatizing Social Security

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  • Alan L. Gustman
  • Thomas L. Steinmeier

Abstract

This paper investigates individual responses to a simple scheme to privatize social security. The analysis explores the sensitivity of outcomes to how individuals project life expectancy, how they value spouse and survivor benefits, and to expected future reductions in social security benefits. Depending on assumptions made, first year participation ranges from 20% to almost 100%. Estimated time paths for taxes decline immediately with privatization, but the decline in benefits grows slowly over a period of two or three decades. Labor force participation rates are not greatly affected by privatization, even if major changes in pensions are induced.
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Suggested Citation

  • Alan L. Gustman & Thomas L. Steinmeier, 1998. "Privatizing Social Security: First-Round Effects of a Generic, Voluntary, Privatized U.S. Social Security System," NBER Chapters, in: Privatizing Social Security, pages 313-361, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:6253
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    References listed on IDEAS

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    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.
    2. Martin Feldstein, 1995. "Would Privatizing Social Security Raise Economic Welfare?," NBER Working Papers 5281, National Bureau of Economic Research, Inc.
    3. Laurence J. Kotlikoff, 1996. "Privatization of Social Security: How It Works and Why It Matters," NBER Chapters, in: Tax Policy and the Economy, Volume 10, pages 1-32, National Bureau of Economic Research, Inc.
    4. Harriet Duleep, 1989. "Measuring socioeconomic mortality differentials over time," Demography, Springer;Population Association of America (PAA), vol. 26(2), pages 345-351, May.
    5. Disney, Richard & Whitehouse, Edward, 1992. "The personal pensions stampede," MPRA Paper 10476, University Library of Munich, Germany.
    6. Mitchell, Olivia S, 1988. "Worker Knowledge of Pension Provisions," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 21-39, January.
    7. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324, Elsevier.
    8. Martin Feldstein, 1980. "Social Security, Induced Retirement, and Aggregate Capital Accumulation:A Correction and Updating," NBER Working Papers 0579, National Bureau of Economic Research, Inc.
    9. Peter Diamond, 1993. "Privatization of Social Security: Lessons from Chile," NBER Working Papers 4510, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Robert Jahoda & Jiøí Špalek, 2009. "Pension Reform through Voluntary Opt-Out: The Czech Case," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(4), pages 309-333, Oktober.
    2. Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 271-324, June.
    3. Alan L. Gustman & Thomas L. Steinmeier, 2005. "Retirement, Saving, Benefit Claiming and Solvency Under A Partial System of Voluntary Personal Accounts," Working Papers wp105, University of Michigan, Michigan Retirement Research Center.
    4. Gustman, Alan L. & Steinmeier, Thomas L., 2001. "How effective is redistribution under the social security benefit formula?," Journal of Public Economics, Elsevier, vol. 82(1), pages 1-28, October.
    5. Laurence J. Kotlikoff & Kent Smetters & Jan Walliser, 1999. "Privatizing Social Security in the U.S. -- Comparing the Options," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 532-574, July.
    6. Richard Disney & Robert Palacios & Edward Whitehouse, 1999. "Individual choice of pension arrangement as a pension reform strategy," IFS Working Papers W99/18, Institute for Fiscal Studies.
    7. Gustman, Alan L. & Steinmeier, Thomas L., 2015. "Effects of social security policies on benefit claiming, retirement and saving," Journal of Public Economics, Elsevier, vol. 129(C), pages 51-62.
    8. David Neumark & Elizabeth T. Powers, 1996. "Consequences of means testing Social Security: evidence from the SSI program," Working Papers (Old Series) 9618, Federal Reserve Bank of Cleveland.
    9. Kent Smetters & Jan Walliser, 2002. "Dropping Out of Social Security," Working Papers wp022, University of Michigan, Michigan Retirement Research Center.
    10. Laurence J. Kotlikoff & Kent A. Smetters & Jan Walliser, 1998. "Opting Out of Social Security and Adverse Selection," NBER Working Papers 6430, National Bureau of Economic Research, Inc.
    11. Lindbeck, Assar & Persson, Mats, 2000. "What Are the Gains from Pension Reform?," Working Paper Series 535, Research Institute of Industrial Economics.
    12. Disney, Richard & Whitehouse, Edward, 1992. "The personal pensions stampede," MPRA Paper 10476, University Library of Munich, Germany.
    13. Roman Arjona, "undated". "Gradually Capitalizing the Spanish Retirement Pension System," Studies on the Spanish Economy 81, FEDEA.
    14. Alan L. Gustman & Thomas L. Steinmeier, 2002. "The New Social Security Commission Personal Accounts: Where Is the Investment Principal?," NBER Working Papers 9045, National Bureau of Economic Research, Inc.
    15. Engelhardt, Gary V. & Kumar, Anil, 2005. "Social security personal-account participation with government matching," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(2), pages 155-179, July.
    16. Nils Hauenschild, 2000. "Pareto-Improving Transition from Pay-as-you-goto Fully Funded Social Security under Uncertain Incomes," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(1), pages 39-62, September.

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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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