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Evaluating pay-as-you-go social security systems

Andreas Bachmann and Kaspar Wüthrich ()

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: This paper proposes a method for the welfare analysis of pay-as-you-go social security systems. We derive a formula for the welfare consequences of a permanent marginal change in the payroll tax rate that is valid under weak assumptions about the deep structure of the economy. Our approach requires neither a full specification of preferences and technology, nor knowledge of the individual savings behavior. Instead of parameterizing and calibrating the deep model structure, we implement our formula based on reduced form estimates of a VAR model. We apply our method to evaluate the social security system in the United States.

Keywords: social security system; overlapping generations; optimal payroll taxes; welfare analysis; reduced form VAR (search for similar items in EconPapers)
JEL-codes: E62 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-mac and nep-pub
Date: 2015-07
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Working Paper: Evaluating pay-as-you-go social security systems (2013) Downloads
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