AltInst: Welfare Reform Proposal

     "Expanding the Welfare System: A Proposal for Reform"

      BY: J. MICHAEL ORSZAG
            University of London, Birkbeck College
          DENNIS J. SNOWER
            University of London, Birkbeck College

          Paper ID: CEPR Discussion Paper A1.15 WP 1674
          Date: 1997

          Contact: J. Michael Orszag
          E-Mail: MAILTO:morszag@economics.bbk.ac.uk
          Postal: University of London, Birkbeck College
                    Department of Economics, 7-15 Gresse St.,
                    London W1P 2LL, United Kingdom
          Phone: 44 (0) 171 631-6427
          Fax: 0171 631 6416
          Co-Auth: MAILTO:dsnower@economics.bbk.ac.uk

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     This proposal involves the establishment of `welfare
     accounts' for every person in a country. There are four
     accounts: a retirement account (covering pensions), an
     unemployment account (covering unemployment support), a human
     capital account (covering education and training), and a
     health account (covering insurance against sickness and
     disability). Unlike current welfare state systems - where
     welfare services are financed predominantly out of general
     taxes - people would make ongoing, mandatory contributions to
     each of these welfare accounts. The balances in these
     accounts would cover people's major welfare needs, with the
     government setting mandatory minimum contribution rates and
     maximum withdrawal rates. The government would operate within
     two budgetary systems: one in which non-welfare expenditures
     are financed through the existing array of taxes; and another
     in which public-sector expenditures on welfare services are
     financed through payments from people's welfare accounts. The
     government could redistribute income across people's welfare
     accounts, but these redistributions would be constrained to
     those of the balanced-budget variety: total (economy-wide)
     taxes on each of the welfare accounts would be equal to total
     transfers into each of accounts. The public and private
     sectors would provide welfare services on an equal footing,
     setting prices for these services and competing with one
     another for the custom of the welfare account holders. We
     argue that moving from current welfare state systems to a
     welfare account system would play an important role in
     reducing unemployment, encouraging labour force
     participation, promoting skills, reducing governments'
     budgetary pressures, cushioning people against economic risk,
     ensuring efficient provision of health and education
     services, providing social safety nets and redistributing
     incomes more efficiently.

     JEL Classification: E61, E62, E64, H11, H23, H24, H41, H42,
                         H51, H52, H53, H54, H61, I11, I22, I28,
                         I38, J68
     __________________

Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-2627

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Received on Mon Jun 22 21:00:27 1998