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How Well Does the US Social Insurance System Provide Social Insurance?

This paper answers the question posed in the title within a model where agents receive idiosyncratic, wage-rate shocks that are privately observed. When the model social insurance system is comprised by the US social security and income tax system, then the maximum ex-ante welfare gain to improved insurance is equivalent to a 12.3 percent increase in consumption. We determine the reasons behind this large welfare gain. We also analyze two parametric reforms of the model social insurance system. One reform increases welfare very little, whereas the other achieves nearly all of the maximum possible welfare gain.

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~06-06-11.

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Date of creation: 11 Jun 2006
Date of revision:
Handle: RePEc:geo:guwopa:gueconwpa~06-06-11
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Georgetown University Department of Economics Washington, DC 20057-1036

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Order Information: Postal: Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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  17. Heathcote, Jonathan & Storesletten, Kjetil & Violante, Giovanni L, 2004. "Two Views of Inequality Over the Life-Cycle," CEPR Discussion Papers 4728, C.E.P.R. Discussion Papers.
  18. Martin Browning & Lars Peter Hansen & James J. Heckman, 1999. "Micro Data and General Equilibrium Models," Discussion Papers 99-10, University of Copenhagen. Department of Economics.
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  20. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
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