TY  - JOUR
AU  - Mitchell, Olivia S
AU  - Zeldes, Stephen P
TI  - "Social Security Privatization: A Structure for Analysis"
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5512
PY  - 1996
Y2  - March 1996
DO  - 10.3386/w5512
UR  - http://www.nber.org/papers/w5512
L1  - http://www.nber.org/papers/w5512.pdf
N1  - Author contact info:
Olivia S. Mitchell
University of Pennsylvania
The Wharton School
3620 Locust Walk, St 3000 SH-DH
Philadelphia, PA 19104-6302
Tel: 215-898-0424
Fax: 215/898-0310
E-Mail: mitchelo@wharton.upenn.edu

Stephen P. Zeldes
Graduate School of Business
Columbia University
3022 Broadway, Uris 825
New York, NY 10027-6902
Tel: 212/854-2492
Fax: 212/208-4699
E-Mail: stephen.zeldes@gsb.columbia.edu
AB  - This paper identifies the key economic issues that must be addressed in the debate over a privatized social security system.  We examine a two-pillar plan.  The first pillar would consist of a demogrant: a small indexed pension of the same dollar amount for all retirees who had contributed to the system over a full lifetime of work.   The second pillar would consist of a fully-funded individual defined-contribution account, financed by payroll taxes, held in financial institutions, and directed by participants.  We explore how such a system would affect the risks households face, how it would alter the distribution of income, and how it might influence household behavior, including incentives to work and save, and portfolio choices.  We also examine macroeconomic issues: how the transition to a private plan would occur, and what the likely effects would be on national saving. We conclude that a two-pillar system offers several positive features, namely a reduction in political risk, an increase in household portfolio choice, and improved work incentives. Disadvantages include less redistributiveness and national risk sharing, and increased administrative costs.
ER  -