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Social Insurance Based on Personal Savings Accounts: A possible reform strategy for overburdened welfare states?

  • Fölster, Stefan

    (Research Institute of Industrial Economics (IFN))

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    In spite of some cutbacks in entitlements, many welfare states' spending has continuously increased over the past decades, leading to larger tax burdens and often higher marginal tax rates. Proposals for reform often focus on reduced social insurance benefits and more actuarial insurance premia. In this paper it is shown that such reforms may have a smaller potential for reducing the marginal tax rate than commonly assumed, unless they are combined with mandatory personal savings accounts. Social insurance based on personal savings account is compared to other systems in a simple theoretical model and in a simulation within the context of Swedish social insurance. The simulation indicates that marginal tax effects can be reduced significantly by social insurance based on savings accounts without affecting life-tim income distribution much.

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    Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 454.

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    Length: 40 pages
    Date of creation: Mar 1996
    Date of revision:
    Handle: RePEc:hhs:iuiwop:0454
    Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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    1. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc.
    2. Cochrane, John H, 1995. "Time-Consistent Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 445-73, June.
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