Sustainable social security: four options

Sagiri Kitao

No 505, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper presents four policy options to make Social Security sustainable under the coming demographic shift: 1) increase payroll taxes by 6 percentage points, 2) reduce the replacement rates of the benefit formula by one-third, 3) raise the normal retirement age from sixty-six to seventy-three, or 4) means-test the benefits and reduce them one-to-one with income. While all four policies achieve the same goal, their economic outcomes differ significantly. Options 2 and 3 encourage own savings, and capital stock is more than 10 percent higher than in the other two options. The payroll tax increase in option 1 discourages work effort, but means-testing the benefits as outlined in option 4 yields the worst labor disincentives, especially among the elderly.

Keywords: Social security; Demography; Retirement; Payroll tax; Labor market; Employee fringe benefits (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-age and nep-lab
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Citations: View citations in EconPapers (6)

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Journal Article: Sustainable Social Security: Four Options (2014)
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