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6 - Questions and Answers

Published online by Cambridge University Press:  06 July 2010

Laurence S. Seidman
Affiliation:
University of Delaware
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Summary

Is funding Social Security applicable to most countries?

Yes.

Is funding Social Security a new proposal?

No. This is made clear from citations and quotes throughout this book.

What are the two distinct components of funding Social Security?

Funding Social Security requires: (1) accumulating a large fund by setting taxes and benefits so that Social Security runs substantial annual surpluses; and (2) investing the fund in a diversified portfolio of marketable government securities, corporate bonds, and corporate stocks.

What does each component do?

Fund accumulation is the key to raising the capital accumulation of the economy, whereas portfolio diversification is the key to capturing a larger share of the economy's capital income for the Social Security system. Suppose an increase in the economy's capital accumulation would generate a return to the economy of 6%. Fund accumulation without portfolio diversification would raise capital accumulation (provided the balance in the rest of the government budget is unaltered) and generate a 6% return to the economy. Fund accumulation with portfolio diversification would raise capital accumulation and cause the Social Security system to capture some of this 6% return.

Type
Chapter
Information
Funding Social Security
A Strategic Alternative
, pp. 159 - 178
Publisher: Cambridge University Press
Print publication year: 1999

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