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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. 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.
  2. 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, June.
  3. Martin Feldstein & Jeffrey B Liebman, 2002. "The Distributional Effects of an Investment-Based Social Security System," Working Papers 02-08, Center for Economic Studies, U.S. Census Bureau.
  4. 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.
  5. 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.
  6. Martin Feldstein, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," NBER Working Papers 5413, National Bureau of Economic Research, Inc.
  7. Peter Diamond, 2000. "Social Security Reform," 'Angelo Costa' Lectures Serie, SIPI Spa, issue Lect. I.
  8. Martin Feldstein, 2005. "Reducing the Risk of Investment-Based Social Security Reform," NBER Working Papers 11084, National Bureau of Economic Research, Inc.
  9. Martin Feldstein, 1994. "Fiscal Policies, Capital Formation, and Capitalism," NBER Working Papers 4885, National Bureau of Economic Research, Inc.
  10. 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, Abril.
  11. Samwick, Andrew & Feldstein, Martin, 2001. "Potential Paths of Social Security Reform," Scholarly Articles 2920119, Harvard University Department of Economics.
  12. David McCarthy & Olivia S. Mitchell, 2003. "International Adverse Selection in Life Insurance and Annuities," NBER Working Papers 9975, National Bureau of Economic Research, Inc.
  13. 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.
  14. 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.
  15. 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.
  16. Martin Feldstein & Andrew Samwick, 1992. "Social Security Rules and Marginal Tax Rates," NBER Working Papers 3962, National Bureau of Economic Research, Inc.
  17. Ranguelova, Elena & Feldstein, Martin, 2001. "Individual Risk in an Investment-Based Social Security System," Scholarly Articles 2797440, Harvard University Department of Economics.
  18. repec:cup:cbooks:9780521844956 is not listed on IDEAS
  19. Jeffrey R. Brown & Olivia S. Mitchell & James M. Poterba, 2001. "The Role of Real Annuities and Indexed Bonds in an Individual Accounts Retirement Program," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 321-370 National Bureau of Economic Research, Inc.
  20. Jeffrey B. Liebman, 2001. "Redistribution in the Current U.S. Social Security System," NBER Working Papers 8625, National Bureau of Economic Research, Inc.
  21. Feldstein, Martin (ed.), 1998. "Privatizing Social Security," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226241012, June.
  22. 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.
  23. Giertz, Seth, 2004. "Recent Literature on Taxable-Income Elasticities," MPRA Paper 16159, University Library of Munich, Germany.
  24. John McHale, 2001. "The Risk of Social Security Benefit-Rule Changes: Some International Evidence," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 247-290 National Bureau of Economic Research, Inc.
  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, June.
  26. Martin Feldstein, 1993. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the1986 Tax Reform Act," NBER Working Papers 4496, National Bureau of Economic Research, Inc.
  27. 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.
  28. 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, Abril.
  29. 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.
  30. 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.
  31. John B. Shoven, 2000. "Administrative Aspects of Investment-Based Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number shov00-1, Abril.
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