Abstract

http://ssrn.com/abstract=1970310
 


 



Social Security on Auto-Pilot: International Experience with Automatic Stabilizer Mechanisms


Barry Bosworth


Brookings Institution - Economic Studies Program

R. Kent Weaver


Brookings Institution

November 9, 2011

Center for Retirement Research at Boston College Working Paper No. 2011-18

Abstract:     
As the baby boom generation enters retirement, a long-forecast funding crisis of the Social Security system is about to become a reality. Many other high-income countries are faced with similar financial problems with their public pension systems. Some of those countries have adopted legislative measures to reduce their funding deficits, and a few have included automatic adjustment mechanisms by which staged adjustments would be made in either benefits or revenues without the need for new legislation. We examine the cases of automatic stabilizer mechanisms (ASMs) in Canada, Sweden, Germany and Italy, with the former two being relatively successful examples, while the latter two are cases of ASMs that were more problematic. Drawing on these international examples, we examine various automatic mechanisms that could be implemented in the United States. We consider three reforms: increase in the retirement age, adoption of a chained Consumer Price Index, and adjustment of the indexation of the taxable wage ceiling so as to stabilize the ratio of taxable to covered wages at its 1983 value of 90 percent. Together, these three reforms would reduce the 75-year actuarial deficit to about ½ percent of taxable wages. We conclude, though, that until the current deficit is fully eliminated, an ASM aimed at maintaining financial balance would not make sense for the Social Security program. However, the international experience does offer a number of lessons for future reforms of the U.S. retirement system.

Number of Pages in PDF File: 46

Keywords: baby boom generation, retirement, social security, high-income countries, fiancial problems, ASMs

JEL Classification: J26, H55

working papers series


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Date posted: December 10, 2011  

Suggested Citation

Bosworth, Barry and Weaver, R. Kent, Social Security on Auto-Pilot: International Experience with Automatic Stabilizer Mechanisms (November 9, 2011). Center for Retirement Research at Boston College Working Paper No. 2011-18. Available at SSRN: http://ssrn.com/abstract=1970310 or http://dx.doi.org/10.2139/ssrn.1970310

Contact Information

Barry Bosworth (Contact Author)
Brookings Institution - Economic Studies Program ( email )
1775 Massachusetts Avenue, NW
Washington, DC 20036
United States
202-797-6000 (Phone)
202-797-6181 (Fax)
R. Kent Weaver
Brookings Institution ( email )
1775 Massachusetts Ave, NW
Washington, DC 20036
United States
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