The effect of changes in Social Security on bequests
The net effect on intergenerational transfers of an increase in Social Security benefits will depend on how much of the increase is consumed and how much bequeathed. I show analytically that the marginal propensity to consume an increase in Social Security benefits is indeterminate: it could range from zero to 1.0 or even larger. At one extreme bequests would fully offset the increase in benefits; at the other bequests would fall. According to simulations based on an estimated model of life-cycle behavior, consumption increases by slightly more than the increase in Social Security benefits, causing bequests to fall. That is, bequests do no offset at all an increase in transfers from the younger generation to the older. Copyright Springer-Verlag 1993
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- Menchik, Paul L & David, Martin, 1983. "Income Distribution, Lifetime Savings, and Bequests," American Economic Review, American Economic Association, vol. 73(4), pages 672-690, September.
- Michael D. Hurd, 1987. "The Marginal Value of Social Security," NBER Working Papers 2411, National Bureau of Economic Research, Inc.