Quantifying the Inefficiency of the Us Social Insurance System
46 Pages Posted: 12 Oct 2005
Date Written: August 2005
Abstract
How far is the US social insurance system from an efficient system? We answer this question within a model where agents receive idiosyncratic, labor-productivity shocks that are privately observed. When social security and income taxation comprise the social insurance system, the maximum possible efficiency gain is equivalent to a 10.5 percent increase in consumption. This occurs when labor productivity differences are set to the permanent differences estimated in US data.
Keywords: social security, idiosyncratic shocks, efficient allocations, private information
JEL Classification: D80, D90, E21
Suggested Citation: Suggested Citation
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