Scandinavian Working Papers in Economics

Seminar Papers,
Stockholm University, Institute for International Economic Studies

No 686: Five Fallacies in the Social Security Debate

Mats Persson ()
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Mats Persson: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden

Abstract: This paper discusses five examples of the conventional wisdom that has often been expressed in the social security debate, even among academic economists. These are: 1. The major problem in most social security systems is that of demography: people simply live too long. 2. Disregarding the issue of demography, a Pay-As-You-Go system is inferior to a fully funded system since the former usually has a lower rate of return. 3. Disregarding the portfolio aspect (which might favor a PAYG system), a funded system dominates a PAYG system in a world of certainty. 4. The social security system is a suitable instrument for intergenerational risk sharing. 5. The government is a safe and reliable provider of insurance.

Keywords: Social security

JEL-codes: H55

24 pages, June 1, 2000

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