Edited by Paolo Onofri
Chapter 5: Distributional impact of social security reform
Barry Bosworth, Gary Burtless and Claudia Sahm* 1. INTRODUCTION The United States, along with most other industrial countries, is debating how to modify public retirement programs in response to population ageing. The debate has identiﬁed three broad approaches to reform: increasing contribution rates; reducing beneﬁts; and pre-funding a larger fraction of future obligations. Opinions about these approaches diﬀer because the options have diﬀering distributional impacts, both on highand low-wage workers within a cohort and across age cohorts. The debate over the ﬁrst two policy options is dominated by distributional concerns. Boosting contribution rates will favor workers who are already retired or near retirement; reducing beneﬁts hurts people who are retired or near retirement. The policy choice between the two options is viewed from the perspective of a zero-sum conﬂict in which the beneﬁts or taxes of one generation or group of workers must be sacriﬁced in the interest of maintaining the incomes of another. The total amount of future resources available for consumption is assumed ﬁxed, and the debate is over how to divide them between workers and retirees and between high- and low-wage workers. From an economic perspective, the option of advance funding introduces a diﬀerent kind of choice. The pool of resources for future consumption cannot be assumed to remain constant. It can rise or fall depending on today’s choice of an advance funding policy. Current workers can fund a greater part of the cost of their own pensions...
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