Sustainable social security: Four options

Sagiri Kitao

Research output: Contribution to journalArticlepeer-review

39 Citations (Scopus)

Abstract

Four options to make the social security sustainable under the coming demographic shift are presented; increase payroll taxes by 6 percentage points, reduce replacement rates by one-third, raise the normal retirement age to 73, or means-test the benefits and reduce them in income. The paper accounts for labor supply at both intensive and extensive margins and analyzes welfare effects across agents that differ in age, wealth and cohorts. While the four policies all achieve the same goal, economic outcomes differ significantly. Options to curtail benefits encourage own savings and capital accumulation, while the payroll tax increase and the means-test reduce work effort. Future generations prefer options to reduce benefits, but current generations prefer to finance the transition with payroll taxes.

Original languageEnglish
Pages (from-to)756-779
Number of pages24
JournalReview of Economic Dynamics
Volume17
Issue number4
DOIs
Publication statusPublished - 2014 Oct 1

Keywords

  • Demographic shift
  • Intensive and extensive labor supply margins
  • Retirement age
  • Social security reform
  • Transition dynamics
  • Welfare analysis

ASJC Scopus subject areas

  • Economics and Econometrics

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