Structural Reform of Social Security

41 Pages Posted: 1 Mar 2005

See all articles by Martin S. Feldstein

Martin S. Feldstein

National Bureau of Economic Research (NBER) (deceased); Harvard University (deceased)

Date Written: February 2005

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. 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.

Suggested Citation

Feldstein, Martin S., Structural Reform of Social Security (February 2005). NBER Working Paper No. w11098, Available at SSRN: https://ssrn.com/abstract=663463

Martin S. Feldstein (Contact Author)

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Harvard University (deceased)

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