Efficient redistribution of lifetime income through welfare accounts

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

Research output: Contribution to journalArticleScientificpeer-review

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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Income
Redistribution
Pareto improvement
Finance
Equity
Tax
Trade-offs
Economic efficiency
Government budget
Behavioral response
Guarantee
Costs

Cite this

Bovenberg, A.L. ; Sorensen, P.B. ; Hansen, M.I. / Efficient redistribution of lifetime income through welfare accounts. In: Fiscal Studies. 2012 ; Vol. 33, No. 1. pp. 1-37.
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Bovenberg, AL, Sorensen, PB & Hansen, MI 2012, 'Efficient redistribution of lifetime income through welfare accounts', Fiscal Studies, vol. 33, no. 1, pp. 1-37.

Efficient redistribution of lifetime income through welfare accounts. / Bovenberg, A.L.; Sorensen, P.B.; Hansen, M.I.

In: Fiscal Studies, Vol. 33, No. 1, 2012, p. 1-37.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Efficient redistribution of lifetime income through welfare accounts

AU - Bovenberg, A.L.

AU - Sorensen, P.B.

AU - Hansen, M.I.

PY - 2012

Y1 - 2012

N2 - 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.

AB - 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.

M3 - Article

VL - 33

SP - 1

EP - 37

JO - Fiscal Studies

JF - Fiscal Studies

SN - 0143-5671

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