How Well Does the US Social Insurance System Provide Social Insurance?

Abstract

This paper answers the question posed in the title within a model where agents receive idiosyncratic, wage-rate shocks that are privately observed. When the model social insurance system is comprised by the US social security and income tax system, then the maximum ex-ante welfare gain to improved insurance is equivalent to a 12.3 percent increase in consumption. We determine the reasons behind this large welfare gain. We also analyze two parametric reforms of the model social insurance system. One reform increases welfare very little, whereas the other achieves nearly all of the maximum possible welfare gain. JEL Classification: D80, D90, E21

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Cite this paper

@inproceedings{Huggett2006HowWD, title={How Well Does the US Social Insurance System Provide Social Insurance?}, author={Mark Huggett and Juan Carlos Parra}, year={2006} }