Privatizing Social Security: First Round Effects of a Generic, VoluntaryPrivatized U.S. Social Security System
Alan L. Gustman, Thomas L. Steinmeier
This paper investigates individual responses to a simple scheme to privatize social security. The analysis explores the sensitivity of outcomes to how individuals project life expectancy, how they value spouse and survivor benefits, and to expected future reductions in social security benefits. Depending on assumptions made, first year participation ranges from 20% to almost 100%. Estimated time paths for taxes decline immediately with privatization, but the decline in benefits grows slowly over a period of two or three decades. Labor force participation rates are not greatly affected by privatization, even if major changes in pensions are induced.
Published: in Martin Feldstein, ed. Privatizing Social Security, University of Chicago Press, 1998