Personal Social Security Accounts: Quantifying the Macro and Efficiency Effects

This project will use a large-scale overlapping-generations lifecycle model incorporating idiosyncratic wage shocks and uncertain lifetimes to calculate the macroeconomic effects and efficiency gains from different approaches to creating personal accounts. The analysis will include the risk sharing aspects of the Social Security system as well as the distortions it poses to labor supply. The model will be fully general-equilibrium in nature, and it will include the effect that introducing personal accounts would have on the capital stock, wages, interest rates, etc. As in Auerbach and Kotlikoff (1987) and Nishiyama and Smetters (2004), a Lump-Sum Redistribution Authority will be used in general equilibrium, allowing us to rigorously examine the efficiency gains of different reforms over the entire transition path. We will investigate different options to maintain risk sharing within a privatized system.