Sustainable social security: Four options |
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| Affiliation: | 1. Department of Economics, Virginia Commonwealth University, P.O. Box 844000, Richmond, VA 23284-4000, USA;2. Board of Governors 20th and C Street NW, Washington, DC 20551, USA;1. Department of Economics, Dartmouth College, Hanover, NH 03755, United States;2. Department of Economics, Texas Tech University, Lubbock, TX 70409, United States;1. University of Warsaw, Faculty of Economic Sciences, ul. Dluga 44/50, 00–241 Warszawa, Poland;2. Warsaw School of Economics, Al. Niepodleglosci 162, 02–554 Warszawa, Poland;3. Narodowy Bank Polski, ul. Swietokrzyska 11/21, 00–919 Warszawa, Poland |
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| Abstract: | Four options to make the social security sustainable under the coming demographic shift are presented; increase payroll taxes by 6 percentage points, reduce replacement rates by one-third, raise the normal retirement age to 73, or means-test the benefits and reduce them in income. The paper accounts for labor supply at both intensive and extensive margins and analyzes welfare effects across agents that differ in age, wealth and cohorts. While the four policies all achieve the same goal, economic outcomes differ significantly. Options to curtail benefits encourage own savings and capital accumulation, while the payroll tax increase and the means-test reduce work effort. Future generations prefer options to reduce benefits, but current generations prefer to finance the transition with payroll taxes. |
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| Keywords: | Social security reform Retirement age Demographic shift Transition dynamics Intensive and extensive labor supply margins Welfare analysis |
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