Social Security in Theory and Practice (II): Efficiency Theories, Narrative Theories, and Implications for Reform

Casey Mulligan and Xavier Sala-i-Martin

No 7119, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 166 countries have some kind of public old age pension. What economic forces create and sustain old age Social Security as a public program? Mulligan and Sala-i-Martin (1999) document several of the internationally and historically common features of social security programs, and explore political' theories of Social Security. This paper discusses the efficiency theories,' which view creation of the SS program as a full or partial solution to some market failure. Efficiency explanations of social security include the SS as welfare for the elderly', the retirement increases productivity to optimally manage human capital externalities', optimal retirement insurance', the prodigal father problem', the misguided Keynesian', the optimal longevity insurance', the government economizing transaction costs' and the return on human capital investment'. We also analyze four narrative' theories of social security: the chain letter theory', the lump of labor theory', the monopoly capitalism theory', and the Sub-but-Nearly-Optimal policy response to private pensions theory'. The political and efficiency explanations are compared with the international and historical facts and used to derive implications for replacing the typical pay-as-you-go system with a forced savings plan. Most of the explanations suggest that forced savings does not increase welfare, and may decrease it.

JEL-codes: D78 H55 (search for similar items in EconPapers)
Date: 1999-05
New Economics Papers: this item is included in nep-his, nep-lab, nep-mic, nep-pbe and nep-pub
Note: AG PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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