NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Structural Reform of Social Security

Martin Feldstein

NBER Working Paper No. 11098
Issued in February 2005
NBER Program(s):   AG   AP   PE

Governments around the world have enacted or are currently considering fundamental structural reforms of their Social Security pension programs. The key feature in these reforms is a shift from a pure pay-as-you-go tax-financed system, in which taxes on current workers are primarily distributed to current retirees, to a mixed system that combines pay-as-you-go benefits with investment-based personal retirement accounts.

This paper discusses how such a mixed system could work in practice and how the transition to such a change could be achieved. It then analyzes the economic gains that would result from shifting to a mixed system. I turn next to the three problems that critics raise about any investment-based plan: administrative costs, risk, and income distribution. Finally, I comment on some of the ad hoc proposals for dealing with the financial problem of Social Security without shifting to an investment-based system.

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Document Object Identifier (DOI): 10.3386/w11098

Published: Feldstein, Martin. "Structural Reform Of Social Security," Journal of Economic Perspectives, 2005, v19(2,Spring), 33-55. citation courtesy of

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