Social insurance based on personal savings accounts (Working Papers No.4E)

Many countries have reformed, or plan to reform, their pension system. The trend is to move from entitlement based systems to systems in which contributions accumulate in some form of personal savings account. In recent years proposals have been made to apply personal savings accounts also to other elements of social insurance, such as unemployment insurance, social assistance, health care costs and others. This paper analyzes the introduction of extended personal savings accounts in an overlapping generations model. The savings accounts provide both unemployment provision and saving toward retirement. The analysis shows under which conditions a savings account based social insurance can be designed to provide economic security at lower marginal tax rates than traditional social insurance.