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Quantifying the Inefficiency of the US Social Insurance System

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Abstract

How far is the US social insurance system from an efficient system? We answer this question within a model where agents receive idiosyncratic, labor-productivity shocks that are privately observed. When social security and income taxation comprise the social insurance system, the maximum possible efficiency gain is equivalent to a 10:5 percent increase in consumption. This occurs when labor productivity diferences are set to the permanent diferences estimated in US data.

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  • Mark Huggett (Georgetown University) and Juan Carlos Parra (Georgetown University), 2005. "Quantifying the Inefficiency of the US Social Insurance System," Working Papers gueconwpa~05-05-16, Georgetown University, Department of Economics.
  • Handle: RePEc:geo:guwopa:gueconwpa~05-05-16
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    Cited by:

    1. Laurence Ales & Maziero Pricila, "undated". "Accounting for Private Information," GSIA Working Papers 2010-E58, Carnegie Mellon University, Tepper School of Business.

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    More about this item

    Keywords

    Social Security; Idiosyncratic Shocks; Efficient Allocations; Private Information;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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