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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
6989.
Length: Date of creation: Mar 1999 Date of revision: Handle: RePEc:nbr:nberwo:6989
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Find related papers by JEL classification: H2 - Public Economics - - Taxation, Subsidies, and Revenue I3 - Health, Education, and Welfare - - Welfare and Poverty
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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.
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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.
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