IDEAS home Printed from https://ideas.repec.org/p/acb/cbeeco/2017-656.html
   My bibliography  Save this paper

Social Security: Progressive Benefits but Regressive Outcome?

Author

Listed:
  • Monisankar Bishnu
  • Nick L. Guo
  • Cagri S Kumru

Abstract

In this paper, we study under what conditions a Pay As You Go (PAYG) type social security program can have regressive outcomes even though the benefits of this program are designed to be progressive. Since a PAYG social security program collects payroll taxes whenever agents are working, and it pays retirement benefits as long as retirees are alive, each individual's well being depends on how long they contribute to and receive payments from this program as well as how much. Empirical evidence suggests that agents who have low income tend to start working earlier and have shorter longevity than those with middle or high income. Implications of the low income groups' shorter mortality are examined both analytically and quantitatively in this paper. We find the conditions under which a PAYG social security program may have a regressive outcome in a simple two period partial equilibrium model. Afterwards, we created a large scale quantitative OLG model calibrated to the US economy to compare aggregate and welfare implications of the US type PAYG, a no progressive PAYG, and a means tested pension program. Our results indicate that incorporating differential mortality into account change the welfare implications.

Suggested Citation

  • Monisankar Bishnu & Nick L. Guo & Cagri S Kumru, 2017. "Social Security: Progressive Benefits but Regressive Outcome?," ANU Working Papers in Economics and Econometrics 2017-656, Australian National University, College of Business and Economics, School of Economics.
  • Handle: RePEc:acb:cbeeco:2017-656
    as

    Download full text from publisher

    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp656.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Shinichi Nishiyama & Kent Smetters, 2007. "Does Social Security Privatization Produce Efficiency Gains?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1677-1719.
    2. Mark Huggett & Juan Carlos Parra, 2010. "How Well Does the U.S. Social Insurance System Provide Social Insurance?," Journal of Political Economy, University of Chicago Press, vol. 118(1), pages 76-112, February.
    3. Cristia, Julian P., 2009. "Rising mortality and life expectancy differentials by lifetime earnings in the United States," Journal of Health Economics, Elsevier, vol. 28(5), pages 984-995, September.
    4. Greg Kaplan, 2012. "Inequality and the life cycle," Quantitative Economics, Econometric Society, vol. 3(3), pages 471-525, November.
    5. Juan Carlos Conesa & Sagiri Kitao & Dirk Krueger, 2009. "Taxing Capital? Not a Bad Idea after All!," American Economic Review, American Economic Association, vol. 99(1), pages 25-48, March.
    6. Cristia, Julian P., 2009. "Rising mortality and life expectancy differentials by lifetime earnings in the United States," Journal of Health Economics, Elsevier, vol. 28(5), pages 984-995, September.
    7. Fehr, Hans & Uhde, Johannes, 2014. "Means-testing and economic efficiency in pension design," Economic Modelling, Elsevier, vol. 44(S1), pages 57-67.
    8. Mark Huggett & Gustavo Ventura, 1999. "On the Distributional Effects of Social Security Reform," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 498-531, July.
    9. Shantanu Bagchi, 2016. "Differential Mortality and the Progressivity of Social Security," Working Papers 2016-03, Towson University, Department of Economics, revised Aug 2016.
    10. Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2011. "Implicit Taxes on Work from Social Security and Medicare," Tax Policy and the Economy, University of Chicago Press, vol. 25(1), pages 69-88.
    11. repec:cup:jpenef:v:16:y:2017:i:03:p:395-418_00 is not listed on IDEAS
    12. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 83-114, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:acb:cbeeco:2017-656. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/feanuau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.