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is Social Security Part of the Social Safety Net?

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  • Jeffrey R. Brown
  • Julia Lynn Coronado
  • Don Fullerton

Abstract

Building on the existing literature that examines the extent of redistribution in the Social Security system as a whole, this paper focuses more specifically on how Social Security affects the poor. This question is important because a Social Security program that reduces overall inequality by redistributing from high income individuals to middle income individuals may do nothing to help the poor; conversely, a program that redistributes to the poor may nonetheless be regressive according to broader measures if it also redistributes from middle to upper income households. We have four major findings. First, as we expand the definition of income to use more comprehensive measures of well-being, we find that Social Security becomes less progressive. Indeed, when we use an "endowment" defined by potential labor earnings at the household level, rather than actual earnings at the individual level, we find that Social Security has virtually no effect on overall inequality. Second, we find that this result is driven largely by the lack of redistribution across the middle and upper part of the income distribution, so it masks some small positive net transfers to those at the bottom of the lifetime income distribution. Third, in cases where redistribution does occur, we find it is not efficiently targeted: many high income households receive positive net transfers, while many low income households pay net taxes. Finally, the redistributive effects of Social Security change over time, and these changes depend on the income concept used to classify someone as "poor".

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-04/cesifo1_wp2610.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2610.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2610

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References

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  1. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  2. Alan L. Gustman & Thomas L. Steinmeier, 2000. "How Effective is Redistribution Under the Social Security Benefit Formula?," NBER Working Papers 7597, National Bureau of Economic Research, Inc.
  3. Jeffrey Brown, 2002. "Differential Mortality and the Value of Individual Account Retirement Annuities," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 401-446 National Bureau of Economic Research, Inc.
  4. Michael D. Hurd & John B. Shoven, 1986. "The Distributional Impact of Social Security," NBER Working Papers 1155, National Bureau of Economic Research, Inc.
  5. James E. Duggan & Robert Gillingham & John S. Greenlees, 1993. "Returns Paid To Early Social Security Cohorts," Contemporary Economic Policy, Western Economic Association International, vol. 11(4), pages 1-13, October.
  6. Steven Caldwell & Melissa Favreault & Alla Gantman & Jagadeesh Gokhale & Thomas Johnson & Laurence J. Kotlikoff, 1999. "Social Security's Treatment of Postwar Americans," NBER Chapters, in: Tax Policy and the Economy, volume 13, pages 109-148 National Bureau of Economic Research, Inc.
  7. Lerman, Robert I. & Yitzhaki, Shlomo, 1995. "Changing Ranks and the Inequality Impacts of Taxes and Transfers," National Tax Journal, National Tax Association, vol. 48(1), pages 45-59, March.
  8. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2006. "Are Americans Saving "Optimally" for Retirement?," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 607-643, August.
  9. Jeffrey B. Liebman, 2001. "Redistribution in the Current U.S. Social Security System," NBER Working Papers 8625, National Bureau of Economic Research, Inc.
  10. Kopczuk, Wojciech & Saez, Emmanuel, 2004. "Top Wealth Shares in the United States, 1916-2000: Evidence from Estate Tax Returns," National Tax Journal, National Tax Association, vol. 57(2), pages 445-87, June.
  11. 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.
  12. Panis, C.W.A. & Lillard, L.A., 1996. "Socioeconomic Differentials in the Returns to Social Security," Papers 96-05, RAND - Labor and Population Program.
  13. Jeffrey Brown & Jeffrey B. Liebman & Joshua Pollet, 2002. "Appendix. Estimating Life Tables That Reflect Socioeconomic Differences In Mortality," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 447-458 National Bureau of Economic Research, Inc.
  14. 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.
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Cited by:
  1. Kuhle, Wolfgang, 2012. "Dynamic efficiency and the two-part golden rule with heterogeneous agents," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 992-1006.
  2. Ignacio Álvarez & Natalia da Silva & Álvaro Forteza & Ianina Rossi, 2012. "Incentivos y patrones de retiro en Uruguay," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 27(2), pages 219-271.

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