02755oam 22003853a 450 991069354410332120230622022822.0(NBER)w6428(NBER)w8451(NBER)w1891(CKB)3240000000019680(EXLCZ)99324000000001968020230622d1998 fy 0engurcnu||||||||Social SecurityPrivatization and Progressivity /Laurence J. Kotlikoff, Kent A. Smetters, Jan WalliserCambridge, MassNational Bureau of Economic Research19981 online resourceillustrations (black and white);NBER working paper seriesno. w6428February 1998.This paper uses a large-scale overlapping generations model that features intragenerational heterogeneity to show that privatizing the U.S. Social Security System could be done on a progressive basis. We start with a close replica of the current system; specifically, we include Social Security's progressive linkages between taxes paid and benefits received. The paper compares achieving progressivity as part of privatization reform by a) providing a pay-as-you-go-financed minimum benefit to all agents at retirement independent of their contributions and b) matching contributions to private retirement accounts on a progressive basis. Although a pay-as-you-go-financed minimum benefit can enhance progressivity, it comes at the cost of substantially smaller long-run macroeconomic and welfare gains. The reasons are two: First, the ongoing unfunded liability to pay for the minimum benefit is roughly half of the unfunded liability of the current Social Security system. Maintaining this liability limits the effect of privatization on saving and capital accumulation. Second, the tax financing the flat minimum benefit is completely distortionary since the benefit one receives is independent of what one contributes. In contrast, matching worker's contributions on a progressive basis can achieve an equally progressive intragenerational distribution of welfare. But it affords much higher long-run levels of capital, labor supply, output and welfare.Working Paper Series (National Bureau of Economic Research)no. w6428.Social Security and Public PensionsjelcSocial Security and Public PensionsH55jelcKotlikoff Laurence J124852Smetters Kent A1363736Walliser Jan1143280National Bureau of Economic Research.MaCbNBERMaCbNBERBOOK9910693544103321Social Security3384677UNINA