Privatizing Social Security in the U.S.: Comparing the Options: Technical Paper 1998-4

This paper considers alternative ways to privatize the U.S. Social Security system. It does so using a new rational-expectations simulation model based on the Auerbach and Kotlikoff (1987) model. The new model incorporates intra-as well as intergenerational heterogeneity and is closely calibrated to U.S. fiscal institutions. Three different dimensions of privatization are considered: the choice of the tax used to finance the transition, the degree of voluntary participation in the new retirement system, and the method of making the new system progressive. The alternative transition taxes are