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Structural Reform of Social Security

  • Martin Feldstein

Governments around the world have enacted or are currently considering fundamental structural reforms of their Social Security pension programs. The key feature in these reforms is a shift from a pure pay-as-you-go tax-financed system, in which taxes on current workers are primarily distributed to current retirees, to a mixed system that combines pay-as-you-go benefits with investment-based personal retirement accounts. This paper discusses how such a mixed system could work in practice and how the transition to such a change could be achieved. It then analyzes the economic gains that would result from shifting to a mixed system. I turn next to the three problems that critics raise about any investment-based plan: administrative costs, risk, and income distribution. Finally, I comment on some of the ad hoc proposals for dealing with the financial problem of Social Security without shifting to an investment-based system.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11098.

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Date of creation: Feb 2005
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Publication status: published as Feldstein, Martin. "Structural Reform Of Social Security," Journal of Economic Perspectives, 2005, v19(2,Spring), 33-55.
Handle: RePEc:nbr:nberwo:11098
Note: AG AP PE
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  1. Martin Feldstein & Elena Ranguelova, 2001. "Individual Risk in an Investment-Based Social Security System," American Economic Review, American Economic Association, vol. 91(4), pages 1116-1125, September.
  2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  3. Brooks,Robin & Razin,Assaf (ed.), 2005. "Social Security Reform," Cambridge Books, Cambridge University Press, number 9780521844956.
  4. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
    • 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.
  5. Jeffrey B. Liebman, 2002. "Redistribution in the Current U.S. Social Security System," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 11-48 National Bureau of Economic Research, Inc.
  6. Martin Feldstein & Andrew Samwick, 2001. "Potential Paths of Social Security Reform," NBER Working Papers 8592, National Bureau of Economic Research, Inc.
  7. David McCarthy & Olivia S. Mitchell, 2003. "International Adverse Selection in Life Insurance and Annuities," NBER Working Papers 9975, National Bureau of Economic Research, Inc.
  8. Martin Feldstein, 2005. "Reducing the Risk of Investment-Based Social Security Reform," NBER Working Papers 11084, National Bureau of Economic Research, Inc.
  9. John McHale, 1999. "The Risk of Social Security Benefit Rule Changes: Some International Evidence," NBER Working Papers 7031, National Bureau of Economic Research, Inc.
  10. Jeffrey R. Brown & Olivia S. Mitchell & James M. Poterba, . "The Role of Real Annuities and Indexed Bonds In An Individual Accounts Retirement Program," Pension Research Council Working Papers 99-2, Wharton School Pension Research Council, University of Pennsylvania.
  11. Feldstein, Martin, 1995. "Fiscal policies, capital formation, and capitalism," European Economic Review, Elsevier, vol. 39(3-4), pages 399-420, April.
  12. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
  13. Douglas W. Elmendorf & Jeffrey B. Liebman & David W. Wilcox, 2001. "Fiscal Policy and Social Security Policy During the 1990s," NBER Working Papers 8488, National Bureau of Economic Research, Inc.
  14. Feldstein, Martin, 1995. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 551-72, June.
  15. John Y. Campbell & Martin Feldstein, 2001. "Risk Aspects of Investment-Based Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number camp01-1.
  16. Coronado Julia Lynn & Fullerton Don & Glass Thomas, 2011. "The Progressivity of Social Security," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-45, November.
  17. Feldstein, Martin & Siebert, Horst (ed.), 2002. "Social Security Pension Reform in Europe," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226241081.
  18. Giertz, Seth, 2004. "Recent Literature on Taxable-Income Elasticities," MPRA Paper 16159, University Library of Munich, Germany.
  19. Martin Feldstein & Jeffrey Liebman, 2000. "The Distributional Effects of an Investment-Based Social Security System," NBER Working Papers 7492, National Bureau of Economic Research, Inc.
  20. John B. Shoven, 2000. "Administrative Aspects of Investment-Based Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number shov00-1.
  21. Ranguelova, Elena & Feldstein, Martin, 2001. "Individual Risk in an Investment-Based Social Security System," Scholarly Articles 2797440, Harvard University Department of Economics.
  22. Alan L. Gustman & Thomas L. Steinmeier, 2000. "How Effective is Redistribution Under the Social Security Benefit Formula?," Working Papers wp005, University of Michigan, Michigan Retirement Research Center.
  23. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
  24. Diamond, Peter A., 2002. "Social Security Reform," OUP Catalogue, Oxford University Press, number 9780199247899.
  25. Feldstein, Martin & Liebman, Jeffrey B. (ed.), 2002. "The Distributional Aspects of Social Security and Social Security Reform," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226241067.
  26. Feldstein, Martin, 1995. "Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Scholarly Articles 2766676, Harvard University Department of Economics.
  27. Martin Feldstein & Andrew Samwick, 1992. "Social Security Rules and Marginal Tax Rates," NBER Working Papers 3962, National Bureau of Economic Research, Inc.
  28. Murphy, Kevin M & Welch, Finis, 1998. "Perspectives on the Social Security Crisis and Proposed Solutions," American Economic Review, American Economic Association, vol. 88(2), pages 142-50, May.
  29. 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.
  30. Feldstein, Martin (ed.), 1998. "Privatizing Social Security," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226241012.
  31. Martin Feldstein & Jeffrey B. Liebman, 2002. "The Distributional Aspects of Social Security and Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number feld02-1.
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