Quantifying the Inefficiency of the Us Social Insurance System

46 Pages Posted: 12 Oct 2005

See all articles by Mark Huggett

Mark Huggett

Georgetown University - Department of Economics

Juan Carlos Parra

The World Bank

Date Written: August 2005

Abstract

How far is the US social insurance system from an efficient system? We answer this question within a model where agents receive idiosyncratic, labor-productivity shocks that are privately observed. When social security and income taxation comprise the social insurance system, the maximum possible efficiency gain is equivalent to a 10.5 percent increase in consumption. This occurs when labor productivity differences are set to the permanent differences estimated in US data.

Keywords: social security, idiosyncratic shocks, efficient allocations, private information

JEL Classification: D80, D90, E21

Suggested Citation

Huggett, Mark and Parra, Juan Carlos, Quantifying the Inefficiency of the Us Social Insurance System (August 2005). Available at SSRN: https://ssrn.com/abstract=817084 or http://dx.doi.org/10.2139/ssrn.817084

Mark Huggett (Contact Author)

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-687-6683 (Phone)

Juan Carlos Parra

The World Bank ( email )

1818 H St NW
Washington, DC 20433
United States

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