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Title:Sustainable social security: Four options PDF Logo
Authors:Kitao, Sagiri
Issue Date:2011
Series/Report no.:Staff Report, Federal Reserve Bank of New York 505
Abstract:This paper presents four policy options to make Social Security sustainable under the coming demographic shift: 1) increase payroll taxes by 6 percentage points, 2) reduce the replacement rates of the benefit formula by one-third, 3) raise the normal retirement age from sixty-six to seventy-three, or 4) means-test the benefits and reduce them one-to-one with income. While all four policies achieve the same goal, their economic outcomes differ significantly. Options 2 and 3 encourage own savings, and capital stock is more than 10 percent higher than in the other two options. The payroll tax increase in option 1 discourages work effort, but means-testing the benefits as outlined in option 4 yields the worst labor disincentives, especially among the elderly.
Subjects:Social Security reform and sustainability
general equilibrium
labor force participation
retirement age
demographic shift
overlapping generations
JEL:E2
E6
H55
J2
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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