DP3479 Assessing Welfare Accounts

Author(s): Stefan Fölster, Robert Gidehag, Mike Orszag, Dennis J. Snower
Publication Date: July 2002
Keyword(s): social insurance, taxes, welfare accounts, welfare reform, welfare state benefits
JEL(s): H11, H21, H23, H51, H52, H53, H55
Programme Areas: Labour Economics, Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3479

The paper examines the possible effects of introducing a large-scale welfare reform in Sweden, namely, the introduction of comprehensive welfare accounts. Under this policy, individuals make mandatory contributions to accounts, which they can top up with voluntary contributions. In return, individuals’ welfare benefits are paid from their accounts. The paper uses a large panel of individual income data to examine how the adoption of universal welfare accounts may affect economic activity. We find that this policy could be designed so as to reduce social insurance expenditure considerably, improve the incentives to work and save, all with relatively small redistributive impact.