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Social Security, Benefit Claiming and Labor Force Participation: A Quantitative General Equilibrium Approach

  • Selahattin Imrohoroglu
  • Sagiri Kitao

We build a general equilibrium model with endogenous saving, labor force participation, work hours and Social Security benefit claiming, in which overlapping generations of individuals face income, survival, and health expenditure risks in incomplete markets. We use the model to study the impact of three Social Security reforms: reductions in benefits and payroll taxes, an increase in the early retirement age from 62 to 64, and an increase in the normal retirement age from 66 to 68. We show that a reform can have a significant effect on the budget of Social Security through changes in savings as well as benefit claiming and labor force participation. When the projected aging of the population is taken into account, the case for a reform that encourages labor force participation of the elderly becomes stronger.

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File URL: http://crr.bc.edu/working-papers/social-security-benefit-claiming-and-labor-force-participation-a-quantitative-general-equilibrium-approach/
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Paper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number wp2010-02.

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Length: 43 pages
Date of creation: Mar 2010
Date of revision: Mar 2010
Handle: RePEc:crr:crrwps:wp2010-02
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  1. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-85, December.
  2. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-99, April.
  3. Imrohoroglu, Selahattin & Kitao, Sagiri, 2009. "Labor supply elasticity and social security reform," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 867-878, August.
  4. Edward C. Prescott & Richard Rogerson & Johanna Wallenius, 2007. "Lifetime aggregate labor supply with endogenous workweek length," Staff Report 400, Federal Reserve Bank of Minneapolis.
  5. Alonso-Ortiz, Jorge, 2010. "Social security and retirement across the OECD," MPRA Paper 35619, University Library of Munich, Germany, revised 13 Dec 2011.
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  8. Giovanni Mastrobuoni, 2006. "Labor Supply Effects of the Recent Social Security Benefit Cuts: Empirical Estimates Using Cohort Discontinuities," CeRP Working Papers 53, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  9. Thomas J. Sargent & Lars Ljungqvist & Sagiri Kitao, 2009. "A Life Cycle Model of Trans-Atlantic Employment Experiences," 2009 Meeting Papers 914, Society for Economic Dynamics.
  10. Deaton, A., 1989. "Saving And Liquidity Constraints," Papers 153, Princeton, Woodrow Wilson School - Public and International Affairs.
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  12. HUANG, HE & IMROHOROG[caron]LU, SELAHATTIN & SARGENT, THOMAS J., 1997. "Two Computations To Fund Social Security," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 7-44, January.
  13. David M, Blau & Donna B, Gilleskie, 2003. "Health Insurance and Retirement of Married Couples," Working Papers 2003-41, Centre de Recherche en Economie et Statistique.
  14. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  15. Jeske, Karsten & Kitao, Sagiri, 2009. "U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 210-221, March.
  16. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2010. "The Macroeconomic Implications of Rising Wage Inequality in the United States," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 681-722, 08.
  17. Hugo Benitez-Silva & Debra S. Dwyer & Frank Heiland & Warren C. Sanderson, 2006. "Retirement and Social Security Reform Expectations: A Solution to the New Early Retirement Puzzle," Department of Economics Working Papers 06-05, Stony Brook University, Department of Economics.
  18. Alan L. Gustman & Thomas L. Steinmeier, 2002. "The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth," Working Papers wp029, University of Michigan, Michigan Retirement Research Center.
  19. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
  20. Mariacristina De Nardi & Eric French & John Bailey Jones, 2009. "Why do the Elderly Save? The Role of Medical Expenses," NBER Working Papers 15149, National Bureau of Economic Research, Inc.
  21. Hugo Benitez-Silva & Frank Heiland, 2005. "Early Claiming of Social Security Benefits and Labor Supply Behavior of Older Americans," Department of Economics Working Papers 05-05, Stony Brook University, Department of Economics.
  22. Orazio P. Attanasio & Agar Brugiavini, 2003. "Social Security And Households' Saving," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 1075-1119, August.
  23. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, vol. 6(1), pages 83-114, June.
  24. Laurence J. Kotlikoff & Kent Smetters & Jan Walliser, 1999. "Privatizing Social Security in the U.S. -- Comparing the Options," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 532-574, July.
  25. Domeij, David & Floden, Martin, 2001. "The labor-supply elasticity and borrowing constraints: Why estimates are biased," SSE/EFI Working Paper Series in Economics and Finance 480, Stockholm School of Economics.
  26. Orazio Attanasio & Sagiri Kitao & Giovanni L. Violante, 2010. "Financing Medicare: A General Equilibrium Analysis," NBER Chapters, in: Demography and the Economy, pages 333-366 National Bureau of Economic Research, Inc.
  27. Hugo Ben�tez-Silva & Frank Heiland, 2007. "The social security earnings test and work incentives," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(3), pages 527-555.
  28. Palumbo, Michael G, 1999. "Uncertain Medical Expenses and Precautionary Saving Near the End of the Life Cycle," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 395-421, April.
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