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Title:Social security reform and temptation PDF Logo
Authors:Kumru, Cagri Seda
Thanopoulos, Athanasios C.
Issue Date:2009
Series/Report no.:CESifo working paper 2778
Abstract:This paper analyzes a fully funded social security system under the assumption that agents face temptation issues. Agents are required to save through individually managed Personal Security Accounts without, and with mandatory annuitization. When the analysis is restricted to CRRA preferences our results are congruent with the literature indicating that the complete elimination of social security is the reform scenario that maximizes welfare improvement. However, when self control preferences are introduced, and as the intensity of self control becomes progressively more severe the social security elimination scenario loses ground very rapidly. In fact, in the case of very severe temptation the elimination of social security becomes the least desirable alternative. Under the light of the above findings, any reform proposal regarding the social security system should consider departures from standard preferences to preference specifications suitable for dealing with preference reversals.
Subjects:funded social security
unfunded social security
self-control preferences
JEL:E60
H55
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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