Improving the Equity-Efficiency Trade-off: Mandatory Savings Accounts for Social Insurance

Lans Bovenberg and Peter Birch Sørensen

No 1041, CESifo Working Paper Series from CESifo

Abstract: In the modern welfare state a substantial part of an individual’s tax bill is transferred back to the same individual taxpayer in the form of social transfers. This provides a rationale for financing part of social insurance through mandatory savings accounts. We analyze the behavioral and welfare effects of compulsory savings accounts in an intertemporal model with uncertainty, endogenous involuntary unemployment and retirement decisions, credit constraints, and heterogeneous agents. We show that the introduction of (early) retirement and unemployment accounts generates a Pareto improvement by enabling the government to provide lifetime income insurance and liquidity insurance in a more efficient manner.

Date: 2003
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Journal Article: Improving the Equity-Efficiency Trade-Off: Mandatory Savings Accounts for Social Insurance (2004)
Working Paper: Improving the Equity-Efficiency Trade-Off: Mandatory Savings Accounts for Social Insurance (2003)
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