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The Labor Supply Effects of the Social Security Earnings Test

  • Leora Friedberg

The Social Security earnings test taxes away benefits at a 33%-50% rate once earnings pass a threshold amount. I investigate the response to three past changes in the earnings test rules, each applying to some age groups and not others. I find that beneficiaries bunch in substantial numbers just below the earnings threshold, and the bunching shifts when the earnings test rules change. These shifts in the budget constraint are incorporated into an econometric model to identify income and substitution effects. The estimation yields significant elasticities that suggest considerable deadweight loss suffered by working beneficiaries. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 82 (2000)
Issue (Month): 1 (February)
Pages: 48-63

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Handle: RePEc:tpr:restat:v:82:y:2000:i:1:p:48-63
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  1. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
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  12. Leora Friedberg, 1998. "The Social Security Earnings Test and Labor Supply of Older Men," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 121-150 National Bureau of Economic Research, Inc.
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  15. Alan L. Gustman & Thomas L. Steinmeier, 1983. "A Structural Retirement Model," NBER Working Papers 1237, National Bureau of Economic Research, Inc.
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  19. MaCurdy, Thomas, 1992. "Work Disincentive Effects of Taxes: A Reexamination of Some Evidence," American Economic Review, American Economic Association, vol. 82(2), pages 243-49, May.
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