Social Security Reform Around the World: Lessons from Other Countries

Studies | International | Social Security

No. 253
Friday, August 30, 2002
by Estelle James


Notes

  1. The first half of this paper draws heavily on an earlier article, Estelle James, "Reforming Social Security in the U.S.: An International Perspective," Business Economics, January 2001.
  2. For examples of the extensive literature on the impact of Social Security on retirement age and savings, respectively, see Jonathan Gruber and David Wise, Social Security and Retirement Around the World (Chicago: University of Chicago Press, 1998); and Lawrence Kotlikoff, Jagadeesh Gokhale and John Sabelhaus, "Understanding the Postwar Decline in United States Saving: A Cohort Analysis," in The Brookings Papers on Economic Activity (Washington, D.C.: Brookings Institution, 1996). Also see a summary of this literature in World Bank, Averting the Old Age Crisis: Policies to Protect the Old and Promote Growth (Washington, D.C.: World Bank and Oxford University Press, 1994).
  3. Alan L. Gustman and Thomas L. Steinmeier, "How Effective Is Redistribution under the Social Security Benefit Formula?" National Bureau of Economic Research, NBER Working Paper No. 7597, 2000; and Julia Lynn Coronado, Don Fullerton and Thomas Glass. "The Progressivity of Social Security," National Bureau of Economic Research, NBER Working Paper No. 7520, 2000.
  4. For a summary of the large literature on intra- and intergenerational redistributions under PAYG in other countries, see Averting the Old Age Crisis. For applicability to the U.S. and distributional effects of proposed reforms, see Lawrence Kotlikoff, "Generational Policy," in Alan Auerbach and Martin Feldstein, eds., The Handbook of Public Economics (New York: North-Holland, forthcoming); Alan Gustman and Thomas Steinmeier, "How Effective Is Redistribution under the Social Security Benefit Formula?" National Bureau of Economic Research, NBER Working Paper No. 7597, 2000; Julia Lynn Coronado, Don Fullerton and Thomas Glass, "Distributional Impacts of Proposed Changes to the Social Security System," in J. Poterba, ed., Tax Policy and the Economy, Vol. 13, 1999, pp. 149-86; Coronado, Fullerton and Glass, "The Progressivity of Social Security," National Bureau of Economic Research, NBER Working Paper No. 7520, 2000; and various papers in Martin Feldstein, ed., The Distributional Effects of Social Security Reform (Chicago: University of Chicago Press, 2000).
  5. Many analysts argue that over the past century, in the U.S. and other countries, the equity premium (the difference between the rate of return on stocks and bonds) has exceeded the amount needed to adjust for risk, and some expect this premium to continue for the next century. See Elroy Dimson, Paul Marsh and Mike Staunton, Triumph of the Optimists (Princeton, N.J.: Princeton University Press, 2002).
  6. Alberto Musalem and Mario Catalan, "Contractual Savings and Capital Markets Development: An Analysis of OECD Countries' Evidence," World Bank Working Paper, 1999.
  7. For further details on the Latin American and Eastern European reforms, see Luis Cerda and Gloria Grandolini, "Mexico: The 1997 Pension Reform. Policy," World Bank, Research Working Paper No. 1933, 1997; A. Chlon, M. Gora and M. Rutkowski, "Shaping Pension Reform in Poland: Security through Diversity," World Bank, Social Protection Discussion Paper No. 9923, 1999; Robert Palacios and Roberto Rocha, "The Hungarian Pension System in Transition," World Bank, Social Protection Discussion Paper, 1997; Monika Queisser, The Second-Generation Pension Reforms in Latin America (Paris: OECD Development Centre Studies, 1998); Klaus Schmidt-Hebbel, "Does Pension Reform Really Spur Productivity, Saving and Growth?" Central Bank of Chile Working Papers 33, Santiago, Chile, 1998; Schmidt-Hebbel, "Chile's Pension Revolution Coming of Age," paper prepared for the DIA Project: "Vergleich alternativer Alterversicherungssysteme in Chile, Deutschland, Groossbritannien, den Niederlanden und den USA," 1999; Schmidt-Hebbel, "Latin America's Pension Revolution: A Review of Approaches and Experience," World Bank ABCDE Conference, Washington, D.C., 1999; Salvador Valdes-Prieto, "Pension Reform in Latin America: Transition and Implementation Problems," Annals of Public and Cooperative Economics, Vol. 69, No. 4, 1998; and Rodrigo Acuña and Augusto Iglesias, "Chile's Pension Reform after 20 Years," World Bank, draft of working paper, 200l. For further details on the OECD reforms, see Hazel Bateman and John Piggott, "Mandatory Occupational Pensions in Australia," Stefan Hepp, "The Swiss Multipillar System," and Paul Johnson, "Pension Reform in the United Kingdom," all from Annals of Public and Cooperative Economics, Vol. 69, No. 4, 1998; and Martin Feldstein, ed., Privatizing Social Security (Chicago: University of Chicago Press, 1998).
  8. For an econometric analysis of this issue see Michael Marlow and Mark W. Crain, "The Causal Relationship Between Social Security and the Federal Budget," in Carolyn Weaver, ed., Social Security's Looming Surpluses; Prospects and Implications (Washington D.C.: American Enterprise Institute Press, 1990).
  9. Valdes-Prieto, "Pension Reform in Latin America" and Schmidt-Hebbel, "Chile's Pension Revolution Coming of Age;" also see Musalem and Catalan, "Contractual Savings and Capital Markets Development."
  10. On the existence of scale economies, see Estelle James and Robert Palacios, "Costs of Administering Public and Private Pension Plans," Finance and Development, Vol. 32, No. 2, pp. 12-15, June 1995; Estelle James, Gary Ferrier, James Smalhout and Dimitri Vittas, "Mutual Funds and Institutional Investments: What Is the Most Efficient Way to Set Up Individual Accounts in a Social Security System?" in John Shoven, ed., Administrative Costs and Social Security Privatization (Chicago: University of Chicago Press, 2000); Estelle James et al., "Administrative Costs and the Organization of Individual Account Systems: A Comparative Perspective," in R. Holzmann and J. Stiglitz, eds., New Ideas About Old Age Security (Washington, D.C.: World Bank, 2001); and Olivia Mitchell, "Administrative Costs in Public and Private Retirement Systems," in Martin Feldstein, ed., Privatizing Social Security.
  11. For more details, see James et al., "Mutual Funds and Institutional Investments"; James et al., "Administrative Costs and the Organization of Individual Account Systems;" Annika Sunden, "The Swedish Notional Account System," Annals of Public and Cooperative Economics, Vol. 69, No. 4, 1998; and Hermann Von Gersdorff, "The Bolivian Pension Reform: Innovative Solutions to Common Problems," World Bank Working Paper, 1997.
  12. Max Alier and Dimitri Vittas, "Personal Pension Plans and Stockmarket Volatility," in R. Holzmann and J. Stiglitz, eds., New Ideas About Old Age Security (Washington, D.C.: World Bank, 2001). Also see the discussion in Liqun Liu, Andrew J. Rettenmaier and Zijun Wang, "Social Security and Market Risk," National Center for Policy Analysis, NCPA Policy Report No. 244, July 2001.
  13. This rule requires pension trustees to act as "prudent men," choosing only those investments that seem to offer reasonable income and safety relative to expected gains.
  14. Acuna and Iglesias, "Chile's Pension Reform after 20 Years."
  15. See Coronado et al., "Distributional Impacts of Proposed Changes to the Social Security System" and "The Progressivity of Social Security"; Feldstein, The Distributional Effects of Social Security Reform; and Gustman and Steinmeier, "How Effective Is Redistribution under the Social Security Benefit Formula?"
  16. See Estelle James, Alejandra Cox-Edwards and Rebeca Wong, "The Gender Impact of Pension Reform: A Cross-Cutting Analysis," World Bank working paper, 2002.
  17. See Estelle James and Sarah Brooks, "The Political Economy of Structural Pension Reform," in R. Holzmann and J. Stiglitz, New Ideas About Old Age Security (Washington, D.C.: World Bank, 2001).
  18. See Edward Gramlich, "Different Approaches for Dealing with Social Security," Journal of Economic Perspectives, Vol. 10, No. 3, 1996, pp. 55-66; Martin Feldstein and Andrew Samwick, "The Transition Path in Privatizing Social Security," National Bureau of Economic Research, NBER Working Paper No. 5761, 1996; Martin Feldstein and Andrew Samwick, "Allocating Payroll Tax Revenue to Personal Retirement Accounts to Maintain Social Security Benefits and the Payroll Tax Rate," National Bureau of Economic Research, NBER Working Paper No. 7767, 2000; and Lawrence Kotlikoff, Kent Smetters and Jan Walliser, "Privatizing Social Security in the U.S.: Comparing the Options," Review of Economic Dynamics, Vol. 2, No. 3, 1999.
  19. Gramlich, "Different Approaches for Dealing with Social Security."

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