Efficient redistribution of lifetime income through welfare accounts

A.L. Bovenberg, P.B. Sorensen, M.I. Hansen

Research output: Contribution to journalArticleScientificpeer-review

1 Citation (Scopus)

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.
Original languageEnglish
Pages (from-to)1-37
JournalFiscal Studies
Volume33
Issue number1
Publication statusPublished - 2012

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