Efficient redistribution of lifetime income through welfare accounts
Bovenberg,A.L. Sorensen,P.B. Hansen,M.I.
Bovenberg,A.L.
Sorensen,P.B.
Hansen,M.I.
Abstract
Compared with a conventional tax–transfer system, individual welfare accounts can redistribute lifetime incomes at a lower efficiency cost. These welfare accounts employ mandatory contributions rather than taxes to finance social transfers to people of working age. We describe a design for welfare accounts that guarantees a Pareto improvement if behavioural responses to the accounts improve the public budget. We also develop a formula for quantifying the impact of welfare accounts on the government budget and economic efficiency. Applying the formula to Danish data, we find that the proposed welfare accounts would generate a Pareto improvement, thus improving the trade-off between equity and efficiency. We discuss how the gains from welfare accounts can be distributed in an equitable manner.
Description
Date
2012
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
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Journal Issue
Keywords
SDG 1 - No Poverty, SDG 10 - Reduced Inequalities
Citation
Bovenberg, A L, Sorensen, P B & Hansen, M I 2012, 'Efficient redistribution of lifetime income through welfare accounts', Fiscal Studies, vol. 33, no. 1, pp. 1-37.