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Structural Reform of Social Security

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  • Martin Feldstein

Abstract

Governments around the world have enacted or are currently considering fundamental structural reforms of their Social Security pension programs. The key feature in these reforms is a shift from a pure pay-as-you-go tax-financed system, in which taxes on current workers are primarily distributed to current retirees, to a mixed system that combines pay-as-you-go benefits with investment-based personal retirement accounts. This paper discusses how such a mixed system could work in practice and how the transition to such a change could be achieved. It then analyzes the economic gains that would result from shifting to a mixed system. I turn next to the three problems that critics raise about any investment-based plan: administrative costs, risk, and income distribution. Finally, I comment on some of the ad hoc proposals for dealing with the financial problem of Social Security without shifting to an investment-based system.

Suggested Citation

  • Martin Feldstein, 2005. "Structural Reform of Social Security," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 33-55, Spring.
    • Handle: RePEc:aea:jecper:v:19:y:2005:i:2:p:33-55
    Note: DOI: 10.1257/0895330054048731
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/0895330054048731
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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H1 - Public Economics - - Structure and Scope of Government

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