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Type: Journal Articles Authors: A. Lans Bovenberg, Martin Ino Hansen and Peter Birch Sørensen ISSN: Print 0143-5671 Online: 1475-5890
Published in: Fiscal Studies, Vol. 33, No. 1, March 2012
Volume, issue, pages: Vol. 33, No. 1, pp. 1–37
JEL classification: H53, H55 Keywords: social insurance, welfare accounts, lifetime income distribution
Compared with a conventional tax–transfer system, individual welfare accounts can redistribute lifetime incomes at a lower efficiency cost. These welfare accounts employ mandatory contributions rather than taxes to finance social transfers to people of working age. We describe a design for welfare accounts that guarantees a Pareto improvement if behavioural responses to the accounts improve the public budget. We also develop a formula for quantifying the impact of welfare accounts on the government budget and economic efficiency. Applying the formula to Danish data, we find that the proposed welfare accounts would generate a Pareto improvement, thus improving the trade-off between equity and efficiency. We discuss how the gains from welfare accounts can be distributed in an equitable manner. Search |
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