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International Tax and Public Finance

, Volume 11, Issue 4, pp 507–529 | Cite as

Improving the Equity-Efficiency Trade-Off: Mandatory Savings Accounts for Social Insurance

  • A. Lans Bovenberg
  • Peter Birch Sørensen
Article

Abstract

In the modern welfare state a substantial part of an individual's tax bill is transferred back to the same individual taxpayer in the form of social transfers. This provides a rationale for financing part of social insurance through mandatory savings accounts. We analyze the behavioral and welfare effects of compulsory savings accounts in an intertemporal model with uncertainty, involuntary unemployment, endogenous retirement decisions, credit constraints, and heterogeneous agents. We show that the introduction of (early) retirement and unemployment accounts generates a Pareto improvement by enabling the government to provide lifetime income insurance and liquidity insurance in a more efficient manner.

social insurance reform mandatory savings accounts 

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Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • A. Lans Bovenberg
    • 1
  • Peter Birch Sørensen
    • 2
  1. 1.CentERTilburg UniversityTilburgThe Netherlands
  2. 2.Institute of EconomicsUniversity of CopenhagenCopenhagen KDenmark

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