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The Optimal Level of Social Security Benefits

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  • Martin Feldstein

Abstract

The optimal level of Social Security benefits depends on balancing the protection that these benefits offer to those who have not provided adequately for their own old age against the welfare costs of distorting economic behavior. The primary such cost is the distortion in private saving. The present paper derives the level of Social Security benefits that is optimal in three basic cases. In the first section of the paper, the optimal level of benefits is derived for an economy in which all individuals do not anticipate retirement at all and therefore do not save. The second and third sections then derive the optimal benefits for economies with two different definitions of attitudes toward retirement and saving.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0970.

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Date of creation: Aug 1982
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Publication status: published as Feldstein, Martin. "The Optimal Level of Social Security Benefits." Quarterly Journal of Economics, Vol. 100, No. 2, (May 1985), pp. 303-320.
Handle: RePEc:nbr:nberwo:0970

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  1. J. A. Mirrlees & P. Diamond, 1982. "Social Insurance with Variable Retirement and Private Saving," Working papers 296, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Diamond, P. A. & Hausman, J. A., 1984. "Individual retirement and savings behavior," Journal of Public Economics, Elsevier, Elsevier, vol. 23(1-2), pages 81-114.
  3. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, Elsevier, vol. 10(3), pages 295-336, December.
  4. Feldstein, Martin & Dicks-Mireaux, Louis & Poterba, James, 1983. "The effective tax rate and the pretax rate of return," Journal of Public Economics, Elsevier, Elsevier, vol. 21(2), pages 129-158, July.
  5. Feldstein, Martin S, 1976. "Perceived Wealth in Bonds and Social Security: A Comment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(2), pages 331-36, April.
  6. Feldstein, Martin S, 1982. "Social Security and Private Saving: Reply," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(3), pages 630-42, June.
  7. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
  8. 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, University of Chicago Press, vol. 66, pages 467.
  9. Kotlikoff, Laurence J, 1979. "Testing the Theory of Social Security and Life Cycle Accumulation," American Economic Review, American Economic Association, American Economic Association, vol. 69(3), pages 396-410, June.
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