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Distributional Impacts of Proposed Changes to the Social Security System

In: Tax Policy and the Economy, volume 13

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  • Julia Lynn Coronado
  • Don Fullerton
  • Thomas Glass

Abstract

In this paper we assess the degree to which the current social security system redistributes income from rich to poor. We then estimate the impact of various proposed changes to social security on the overall redistributive effect of the system. Our analysis takes a steady state approach in which we assume participants work their entire lives and retire under a given system. Redistribution is measured on a lifetime basis using estimated earnings profiles for a sample of people taken from the PSID. We account for differential mortality, not only by gender and race, but also be lifetime income. Our results indicate that the current social security system redistributes less than is generally perceived, mainly because people with higher lifetime income live longer and therefore draw benefits longer. Remaining progressivity is reduced and even reversed by an increase in the assumed discount rate, since regressive taxes become more important relative to later progressive benefits. We find that many of the proposed changes to social security have surprising little effect on the redistribution inherent in the system.

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This chapter was published in:

  • James Poterba, 1999. "Tax Policy and the Economy, volume 13," NBER Books, National Bureau of Economic Research, Inc, number pote99-2, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10924.

    Handle: RePEc:nbr:nberch:10924

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    References

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    1. Burkhauser, Richard V & Warlick, Jennifer L, 1981. "Disentangling the Annuity from the Redistributive Aspects of Social Security in the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 27(4), pages 401-21, December.
    2. Garrett, Daniel M, 1995. "The Effects of Differential Mortality Rates on the Progressivity of Social Security," Economic Inquiry, Western Economic Association International, vol. 33(3), pages 457-75, July.
    3. Julia Lynn Coronado & Don Fullerton & Thomas Glass, 2011. "The Progressivity of Social Security," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 70.
    4. Steven Caldwell & Melissa Favreault & Alla Gantman & Jagadeesh Gokhale & Thomas Johnson, 1998. "Social Security's Treatment of Postwar Americans," NBER Working Papers 6603, National Bureau of Economic Research, Inc.
    5. Michael J. Boskin & Laurence J. Kotlikoff & Douglas J. Puffert & John B. Shoven, 1987. "Social Security: A Financial Appraisal Across and Within Generations," NBER Working Papers 1891, National Bureau of Economic Research, Inc.
    6. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
    7. Michael D. Hurd & John B. Shoven, 1986. "The Distributional Impact of Social Security," NBER Working Papers 1155, National Bureau of Economic Research, Inc.
    8. Edward M. Gramlich, 1996. "Different Approaches for Dealing with Social Security," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 55-66, Summer.
    9. Panis, C.W.A. & Lillard, L.A., 1996. "Socioeconomic Differentials in the Returns to Social Security," Papers 96-05, RAND - Labor and Population Program.
    10. Harriet Orcutt Duleep, 1986. "Measuring the Effect of Income on Adult Mortality Using Longitudinal Administrative Record Data," Journal of Human Resources, University of Wisconsin Press, vol. 21(2), pages 238-251.
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    Cited by:
    1. Jagadeesh Gokhale & Laurence J. Kotlikoff, 1999. "Social Security's Treatment of Postwar Americans: How Bad Can It Get?," NBER Working Papers 7362, National Bureau of Economic Research, Inc.
    2. Gilles Le Garrec, 2012. "Social security and growth in an agin economy: the case of actuarial fairness," Documents de Travail de l'OFCE 2012-18, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. Julia Lynn Coronado & Don Fullerton & Thomas Glass, 2002. "Long-Run Effects of Social Security Reform Proposals on Lifetime Progressivity," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 149-206 National Bureau of Economic Research, Inc.
    4. Julia Lynn Coronado & Don Fullerton & Thomas Glass, 2011. "The Progressivity of Social Security," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 70.
    5. Gilles LE GARREC, 2009. "Système de retraite et vieillissement," Annales d'Economie et de Statistique, ENSAE, issue 93-94, pages 363-379.
    6. Pfau, Wade Donald, 2009. "How Representative are Representative Workers? An Assessment of the Hypothetical Workers Commonly Used in Social Security Studies," MPRA Paper 19036, University Library of Munich, Germany.
    7. Alan L. Gustman & Thomas L. Steinmeier, 2000. "How Effective is Redistribution Under the Social Security Benefit Formula?," Working Papers wp005, University of Michigan, Michigan Retirement Research Center.
    8. Thomas F. Crossley & Yuri Ostrovsky, 2003. "A Synthetic Cohort Analysis of Canadian Housing Careers," Social and Economic Dimensions of an Aging Population Research Papers 107, McMaster University.
    9. Gilles Le Garrec & Stéphane Lhuissier, 2011. "Life expectancy, heavy work and return to education ; lessons for the social security reform," Documents de Travail de l'OFCE 2011-18, Observatoire Francais des Conjonctures Economiques (OFCE).
    10. Ayfer Karayel, 2006. "The intragenerationally redistributive effects of the retirement insurance scheme in Turkey before and after the 1999 reform," Applied Economics, Taylor and Francis Journals, vol. 38(4), pages 441-448.
    11. Gilles Le Garrec, 2005. "Social security, inequality and growth," Documents de Travail de l'OFCE 2005-22, Observatoire Francais des Conjonctures Economiques (OFCE).

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