Social Insurance Based on Personal Savings Accounts: A possible reform strategy for overburdened welfare states?

Stefan Fölster
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Stefan Fölster: Research Institute of Industrial Economics (IFN)

No 454, Working Paper Series from Research Institute of Industrial Economics

Abstract: In spite of some cutbacks in entitlements, many welfare states' spending has continuously increased over the past decades, leading to larger tax burdens and often higher marginal tax rates. Proposals for reform often focus on reduced social insurance benefits and more actuarial insurance premia. In this paper it is shown that such reforms may have a smaller potential for reducing the marginal tax rate than commonly assumed, unless they are combined with mandatory personal savings accounts. Social insurance based on personal savings account is compared to other systems in a simple theoretical model and in a simulation within the context of Swedish social insurance. The simulation indicates that marginal tax effects can be reduced significantly by social insurance based on savings accounts without affecting life-tim income distribution much.

Keywords: WELFARE STATE; SOCIAL INSURANCE (search for similar items in EconPapers)
JEL-codes: D60 D63 D69 (search for similar items in EconPapers)
Pages: 40 pages
Date: 1996-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0454

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