Social Insurance Based on Personal Savings Accounts: A Possible Reform Strategy for Overburdened Welfare States

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractIn 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-time income distribution much.

The Futile Quest for a Grand Explanation of Long-Run Government Expenditure

“…14 Bergh (2005) calculates that 75% of all redistributive transfers in Sweden concern life cycle redistributions for the same individual. Large part of such transfers can be handled in other ways, notably by private agents or through mandatory personal savings accounts (Fölster 1997 Disincentive effects of a large government sector will set in sooner or later, and according to many observers such effects were apparent in both countries by the mid 1970s, but severe structural crises were required before relative government spending was lowered. 16 Since the early to mid 1990s there has been a great deal of deregulation of product markets, and globalization has strongly increased the competitive pressure both on firms and tax bases (Sinn 1998;Bergh and Karlsson 2010).…”

Health Accounts and Other Welfare Accounts

“…In fact, one in five had moved up at least two quintiles. 4 Studies from several welfare states indicate that as little as 20 to 25 percent of social transfers may actually redistribute between individuals, while the remaining 75 to 80 percent merely smoothes income over the individual's life cycle (Hussénius and Sélen 1994;Fölster 1998). The taxes that need to be levied to finance these transfers inevitably distort economic incentives, reducing the incentive to work, save and invest.…”

Incentives in the Welfare State: Lessons for Would-be Welfare States

“…A system of drawing rights, finally, would allow the individual to draw on an account in the public sector for well-defined contingencies, for instance, in connection with education, training, sickness or unemployment, though less would then be available later on, ultimately for pensions (Fölster, 1995). An advantage of such a system, if it is made strongly actuarial'…”