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Simulating the Privatization of Social Security in General Equilibrium

  • Laurence J. Kotlikoff

This paper studies the macroeconomic and efficiency effects of privatizing social security. It does so by simulating alternative privatization schemes using the Auerbach-Kotlikoff Dynamic Life-Cycle Model. The simulations indicate three things. First, privatizing social security can generate very major long-run increases in output and living standards. Second the long-run gains from privatization are larger if privatization redistributes resources from initial to future generations, the pure efficiency gains from privatization are also substantial. Efficiency gains refers to the welfare improvement available to future generations after existing generations have been fully compensated for their losses from privatization. The precise size of the efficiency gain depends on the existing tax structure, the linkage between benefits and taxes under the existing social security system, and the method chosen to finance benefits during the transition. Third, at least in the long run, privatizing social security is likely to be progressive in that it improves the well-being of the lifetime poor relative to that of the lifetime rich

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5776.

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Date of creation: Sep 1996
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Publication status: published as Simulating the Privatization of Social Security in General Equilibrium , Laurence J. Kotlikoff. in Privatizing Social Security , Feldstein. 1998
Handle: RePEc:nbr:nberwo:5776
Note: AG PE
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  1. Michael J. Boskin & Laurence J. Kotlikoff & Douglas J. Puffert & John B. Shoven, 1986. "Social Security: A Financial Appraisal Across and Within Generations," NBER Working Papers 1891, National Bureau of Economic Research, Inc.
  2. anonymous, 1987. "Policy statement effective September 18, 1987," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 869, 870.
  3. Auerbach, A.J. & Kotlikoff, L.J. & Weil, D.N., 1992. "The Increasing Annuitization of the Elderly - Estimates and Implications for Intergenerational Transfers, Inequality and National Saving," Papers 6, Boston University - Department of Economics.
  4. Laurence J. Kotlikoff & Avia Spivak, 1979. "The Family as an Incomplete Annuities Market," NBER Working Papers 0362, National Bureau of Economic Research, Inc.
  5. Chamley, Christophe, 1981. "The Welfare Cost of Capital Income Taxation in a Growing Economy," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 468-96, June.
  6. anonymous, 1987. "Prudential policy in a deregulated environment," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 50, march.
  7. Martin Feldstein & Andrew Samwick, 1992. "Social Security Rules and Marginal Tax Rates," NBER Working Papers 3962, National Bureau of Economic Research, Inc.
  8. Hayashi, Fumio & Altonji, Joseph & Kotlikoff, Laurence, 1996. "Risk-Sharing between and within Families," Econometrica, Econometric Society, vol. 64(2), pages 261-94, March.
  9. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
  10. anonymous, 1987. "Review of monetary policy and conditions," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 50, march.
  11. Arrau, Patricio, 1990. "Social security reform : the capital accumulation and intergenerational distribution effect," Policy Research Working Paper Series 512, The World Bank.
  12. 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.
  13. Cardarelli, Roberto & Sefton, James & Kotlikoff, Laurence J, 2000. "Generational Accounting in the UK," Economic Journal, Royal Economic Society, vol. 110(467), pages F547-74, November.
  14. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1996. "Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 315-407.
  15. Salvador Valdés & Peter Diamond, . "Social Security Reforms in Chile," Documentos de Trabajo 161, Instituto de Economia. Pontificia Universidad Católica de Chile..
  16. Kotlikoff, Laurence, 1996. "Privatizing School Security at Home and Abroad," American Economic Review, American Economic Association, vol. 86(2), pages 368-72, May.
  17. anonymous, 1987. "Review of monetary conditions and policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 50, june.
  18. Zvi Bodie & John B. Shoven, 1983. "Financial Aspects of the United States Pension System," NBER Books, National Bureau of Economic Research, Inc, number bodi83-1, September.
  19. Robert C. Merton, 1981. "On the Role of Social Security as a Means for Efficient Risk-Bearing in an Economy Where Human Capital Is Not Tradeable," NBER Working Papers 0743, National Bureau of Economic Research, Inc.
  20. Vietor,Richard H. K., 1987. "Energy Policy in America since 1945," Cambridge Books, Cambridge University Press, number 9780521335720, Junio.
  21. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
  22. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus & David N. Weil, 1994. "The annuitization of Americans' resources: a cohort analysis," Working Paper 9413, Federal Reserve Bank of Cleveland.
  23. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 83-114, June.
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