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Growth and Welfare Implications of Mortality Differentials in Unfunded Social Security Systems

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  • Mark C. Kelly

Abstract

Several recent studies have examined the steady-state welfare implications of mortality differentials within unfunded Social Security systems, concluding that these differentials undermine the progressivity of the system and make society worse-off relative to alternative public pension schemes. This study is the first to systematically investigate the long-run implications of mortality inequality within the U.S. Social Security system. Utilizing an OLG endogenous growth model of the U.S. economy, I compare the current pay-as-you-go (PAYG) system to versions of the model without either mortality differentials or income inequality. I find that the assumption of mortality homogeneity biases the equilibrium growth rate and welfare analysis. The PAYG system is also compared to a fully funded system based on capital subsidies. The model predicts that PAYG suppresses growth and that, for a given range of subsidy rates, the fully funded system Pareto dominates PAYG in both the medium-run and the long-run.

Suggested Citation

  • Mark C. Kelly, 2022. "Growth and Welfare Implications of Mortality Differentials in Unfunded Social Security Systems," Public Finance Review, , vol. 50(2), pages 206-235, March.
    • Handle: RePEc:sae:pubfin:v:50:y:2022:i:2:p:206-235
    DOI: 10.1177/10911421221101933
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    References listed on IDEAS

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    More about this item

    Keywords

    social security; mortality differentials; growth; demography; JEL Classification Number:; H55; D31; E60; O40;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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