Evaluating pay-as-you-go social security systems

Bachmann, Andreas; Wüthrich, Kaspar (July 2015). Evaluating pay-as-you-go social security systems (Discussion Papers 15-07). Bern: Department of Economics

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This paper proposes a method for the welfare analysis of pay-as-you-go social security
systems. We derive a formula for the welfare consequences of a permanent marginal change
in the payroll tax rate that is valid under weak assumptions about the deep structure of the
economy. Our approach requires neither a full specification of preferences and technology,
nor knowledge of the individual savings behavior. Instead of parameterizing and calibrating
the deep model structure, we implement our formula based on reduced form estimates of
a VAR model. We apply our method to evaluate the social security system in the United
States.

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