Working Paper: NBER ID: w11098
Authors: Martin Feldstein
Abstract: 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. \n\tThis 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.
Keywords: No keywords provided
JEL Codes: H0; H1; H3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Transitioning from a pure pay-as-you-go system to a mixed system (H55) | increase national saving (D14) |
| increase national saving (D14) | support future retirement benefits without raising payroll taxes (H55) |
| mixed system (P40) | enhance overall economic efficiency (D61) |
| mixed system (P40) | reduce deadweight loss associated with higher tax rates (H21) |
| structure of social security (H55) | benefit adequacy (H55) |