Abstract
Using Danish data, we find that about three-fourths of the taxes levied to finance public transfers actually finance benefits that redistribute income over the life cycle of individual taxpayers rather than redistribute resources across people. This finding and similar results for other countries provide a rationale for financing part of social insurance via mandatory individual savings accounts. We discuss the advantages and disadvantages of mandatory individual savings accounts for social insurance and survey some recent alternative proposals for such accounts.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Arrow, K. J. (1971). Essays in the theory of risk bearing. Chicago: Markham.
Bovenberg, A. L. (2005). Balancing work and family life during the life course. De Economist, 153.
Bovenberg, A. L., & Sørensen, P. B. (2004). Improving the equity-efficiency trade-off: mandatory savings accounts for social insurance. International Tax and Public Finance, 11, 507–529.
Bovenberg, A. L., & Sørensen, P. B. (2006). Optimal taxation and social insurance in a lifetime perspective (EPRU working paper 06-01). Economic Policy Research Unit, University of Copenhagen.
Bovenberg, A. L., Hansen, M. I., & Sørensen, P. B. (2006). Individual accounts and the life-cycle approach to social insurance. Mimeo.
Cassamatta, G., Cremer, H., & Pestieau, P. (2000). Political sustainability and the design of social insurance. Journal of Public Economics, 75, 341–364.
Coronado, J. L., Fullerton, D., & Glass, T. (2000). The progressivity of social security (NBER working paper 7520). Cambridge, MA.
Danish Economic Council (2005). Dansk Økonomi, Forår 2005 (The Danish Economy, Spring 2005). Copenhagen.
Danish Ministry of Finance (2002). Fordeling og Incitamenter 2002 (Distribution and incentives 2002). Copenhagen.
Falkingham, J., & Harding, A. (1996). Contributions to economic analysis: Vol. 232. Poverty alleviation versus social insurance systems: a comparison of lifetime redistribution. Amsterdam: North Holland.
Fölster, S. (1999). Social insurance based on personal savings. The Economic Record, 75, 5–18.
Gollier, C., & Schlesinger, H. (1995). Second-best insurance contract design in an incomplete market. Scandinavian Journal of Economics, 97, 123–135.
Gustman, A. L., & Steinmeier, T. L. (2000). How effective is redistribution under the social security benefit formula? (NBER working paper 7597). Cambridge, MA.
Hansen, M. I. (2005). Medborgerkonti—velfærdsydelser finansieret af individuelle opsparingskonti (Citizen accounts—social insurance financed by individual savings accounts). Master thesis, Department of Economics, University of Copenhagen.
Hussénius, J., & Selén, J. (1994). Skatter och socialforsäkringer över livscykeln—en simuleringsmodell (Taxes and social insurance across the life cycle—a simulation model). Ds 1994: 86 (ESO), Swedish Ministry of Finance, Stockholm.
Kreiner, C. T., & Tranæs, T. (2005). Optimal workfare with voluntary and involuntary unemployment. Scandinavian Journal of Economics, 107, 459–474.
Leijnse, F., Goudswaard, K., Plantinga, J., & van der Toren, J. P. (2004). A different attitude to social security. In Life course policy conference, SER, the Hague, June 3–4, 2004.
Liebman, J. B. (2001). Redistribution in the current U.S. social security system (NBER working paper 8625). Cambridge, MA.
Nelissen, J. H. M. (1998). Annual versus lifetime income redistribution by social security. Journal of Public Economics, 68, 223–249.
O’Donoghue, C. (2001). Redistribution in the Irish tax-benefit system. Ph.D. thesis, London School of Economics, London.
Orszag, J., & Snower, D. (1997). Expanding the welfare system: a proposal for reform. European Economy, 4, 101–118.
Orszag, J., & Snower, D. (2002). From unemployment benefits to unemployment accounts (IZA discussion paper No. 532). Institute for the Study of Labor, Bonn.
Pettersson, T., & Pettersson, T. (2003). Fördelningen ur et livscykelperspektiv (Distribution from a life cycle perspective). Bilaga 9 till långtidsutredningen, Swedish Ministry of Finance, Stockholm.
Stiglitz, J., & Yun, J. (2002). Integration of unemployment insurance with retirement insurance (NBER working paper 9199).
Ter Rele, H. (2005). Measuring lifetime redistribution in Dutch collective arrangements (CPB Document No. 79). CPB Netherlands Bureau for Economic Policy Analysis, the Hague.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License ( https://creativecommons.org/licenses/by-nc/2.0 ), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
About this article
Cite this article
Bovenberg, A.L., Hansen, M.I. & Sørensen, P.B. Individual savings accounts for social insurance: rationale and alternative designs. Int Tax Public Finance 15, 67–86 (2008). https://doi.org/10.1007/s10797-007-9046-8
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10797-007-9046-8