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

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

46 Pages Posted: 10 Dec 2011  

Barry Bosworth

Brookings Institution - Economic Studies Program

R. Kent Weaver

Brookings Institution

Date Written: November 9, 2011

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.

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

JEL Classification: J26, H55

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: https://ssrn.com/abstract=1970310 or http://dx.doi.org/10.2139/ssrn.1970310

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

Paper statistics

Downloads
56
Rank
307,770
Abstract Views
280