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Distributional Impacts of Proposed Changes to the Social Security System

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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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6989.

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Date of creation: Mar 1999
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Publication status: published as Distributional Impacts of Proposed Changes to the Social Security System , Julia Lynn Coronado, Don Fullerton, Thomas Glass. in Tax Policy and the Economy, volume 13 , Poterba. 1999
Handle: RePEc:nbr:nberwo:6989

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  1. Gramlich, Edward M, 1996. "Different Approaches for Dealing with Social Security," American Economic Review, American Economic Association, vol. 86(2), pages 358-62, May.
  2. Michael D. Hurd & John B. Shoven, 1985. "The Distributional Impact of Social Security," NBER Chapters, in: Pensions, Labor, and Individual Choice, pages 193-222 National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. 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.
  6. Julia Lynn Coronado & Don Fullerton & Thomas Glass, 2000. "The Progressivity of Social Security," NBER Working Papers 7520, National Bureau of Economic Research, Inc.
  7. 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.
  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, vol. 66, pages 467.
  9. 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.
  10. Panis, C.W.A. & Lillard, L.A., 1996. "Socioeconomic Differentials in the Returns to Social Security," Papers 96-05, RAND - Labor and Population Program.
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Cited by:
  1. Wade D. Pfau, 2009. "How Representative are Representative Workers? An Assessment of the Hypothetical Workers Commonly Used in Social Security Studies," Journal of Income Distribution, Journal of Income Distribution, vol. 18(2), pages 92-117, June.
  2. Johnson, Richard W., 1999. "Distributional Implications of Social Security Reform for the Elderly: The Impact of Revising COLAs, the Normal Retirement Age, and the Taxation of Benefits," National Tax Journal, National Tax Association, vol. 52(n. 3), pages 505-30, September.
  3. 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).
  4. Gilles Le Garrec, 2005. "Systèmes de retraite et vieillissement," Documents de Travail de l'OFCE 2005-21, Observatoire Francais des Conjonctures Economiques (OFCE).
  5. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09hi6860cc6 is not listed on IDEAS
  6. 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).
  7. 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.
  8. Gilles Le Garrec & Stéphane Lhuissier, 2011. "Life expectancy, heavy work and the return to education: lessons for the social security reform," Sciences Po publications 2011-18, Sciences Po.
  9. Coronado Julia Lynn & Fullerton Don & Glass Thomas, 2011. "The Progressivity of Social Security," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-45, November.
  10. Gustman, Alan L. & Steinmeier, Thomas L., 2001. "How effective is redistribution under the social security benefit formula?," Journal of Public Economics, Elsevier, vol. 82(1), pages 1-28, October.
  11. Ayfer Karayel, 2006. "The intragenerationally redistributive effects of the retirement insurance scheme in Turkey before and after the 1999 reform," Applied Economics, Taylor & Francis Journals, vol. 38(4), pages 441-448.
  12. Julia Lynn Coronado & Don Fullerton & Thomas Glass, 2000. "Long Run Effects of Social Security Reform Proposals on Lifetime Progressivity," NBER Working Papers 7568, National Bureau of Economic Research, Inc.
  13. Gilles Le Garrec, 2005. "Social security, inequality and growth," Documents de Travail de l'OFCE 2005-22, Observatoire Francais des Conjonctures Economiques (OFCE).
  14. 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.
  15. Estelle James & Alejandra Cox Edwards & Rebeca Wong, 2012. "The Gender Impact of Pension Reform," World Bank Other Operational Studies 13046, The World Bank.

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