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Expanding the Welfare System: A Proposal for Reform

Author

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  • Orszag, Mike
  • Snower, Dennis J.

Abstract

This proposal involves the establishment of ‘welfare accounts’ for every person in a country. There are four accounts: a retirement account (covering pensions), an unemployment account (covering unemployment support), a human capital account (covering education and training), and a health account (covering insurance against sickness and disability). Unlike current welfare state systems – where welfare services are financed predominantly out of general taxes – people would make ongoing, mandatory contributions to each of these welfare accounts. The balances in these accounts would cover people’s major welfare needs, with the government setting mandatory minimum contribution rates and maximum withdrawal rates. The government would operate within two budgetary systems: one in which non-welfare expenditures are financed through the existing array of taxes; and another in which public-sector expenditures on welfare services are financed through payments from people’s welfare accounts. The government could redistribute income across people’s welfare accounts, but these redistributions would be constrained to those of the balanced-budget variety: total (economy-wide) taxes on each of the welfare accounts would be equal to total transfers into each of accounts. The public and private sectors would provide welfare services on an equal footing, setting prices for these services and competing with one another for the custom of the welfare account holders. We argue that moving from current welfare state systems to a welfare account system would play an important role in reducing unemployment, encouraging labour force participation, promoting skills, reducing governments’ budgetary pressures, cushioning people against economic risk, ensuring efficient provision of health and education services, providing social safety nets and redistributing incomes more efficiently.

Suggested Citation

  • Orszag, Mike & Snower, Dennis J., 1997. "Expanding the Welfare System: A Proposal for Reform," CEPR Discussion Papers 1674, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1674
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    Citations

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    Cited by:

    1. Brown, Alessio J.G. & Orszag, J. Michael & Snower, Dennis J., 2008. "Unemployment accounts and employment incentives," European Journal of Political Economy, Elsevier, vol. 24(3), pages 587-604, September.
    2. A. Lans Bovenberg & Peter Birch Sørensen, 2004. "Improving the Equity-Efficiency Trade-Off: Mandatory Savings Accounts for Social Insurance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(4), pages 507-529, August.
    3. Bovenberg, A L, 2003. "Financing Retirement in the European Union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 713-734, November.
    4. A. Bovenberg & Martin Hansen & Peter Sørensen, 2008. "Individual savings accounts for social insurance: rationale and alternative designs," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(1), pages 67-86, February.
    5. A. Lans Bovenberg & Peter Birch Sørensen, "undated". "Optimal Taxation and Social Insurance in a Lifetime Perspective," EPRU Working Paper Series 06-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    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.
    7. Fehn, Rainer, 2002. "Arbeitsmarktflexibilisierung und Arbeitslosigkeit," Discussion Paper Series 54, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    8. Goerke, Laszlo, 2007. "Unemployment Insurance Savings Accounts and Collective Wage Determination," IZA Discussion Papers 3141, Institute for the Study of Labor (IZA).
    9. A. Lans Bovenberg, 2004. "Die Vereinbarkeit von Beruf und Familie: Lösungen für die gesamte Lebenszeit," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 57(21), pages 17-29, November.
    10. Bovenberg, A.L. & Hansen, M. & Sorensen, P.B., 2008. "Individual savings accounts for social insurance : Rationale and alternative designs," Other publications TiSEM 72e236b0-ad63-4bea-a314-6, Tilburg University, School of Economics and Management.
    11. 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.
    12. Ruud de Mooij, 2004. "Towards efficient unemployment insurance in the Netherlands," CPB Memorandum 100, CPB Netherlands Bureau for Economic Policy Analysis.
    13. 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.
    14. Regina T. Riphahn, 1999. "Income and employment effects of health shocks A test case for the German welfare state," Journal of Population Economics, Springer;European Society for Population Economics, vol. 12(3), pages 363-389.
    15. Lindbeck, Assar, 2001. "Changing Tides for the Welfare State - An Essay," Working Paper Series 550, Research Institute of Industrial Economics.
    16. Lindbeck, Assar, 2001. "Changing Tides For The Welfare State," Seminar Papers 694, Stockholm University, Institute for International Economic Studies.
    17. A. Bovenberg, 2005. "Balancing Work and Family Life during the Life Course," De Economist, Springer, vol. 153(4), pages 399-423, December.

    More about this item

    Keywords

    Competition; Education and training; Health; Pensions; Redistribution; Sickness and disability; Social Insurance; Unemployment; Welfare Accounts; Welfare State;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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