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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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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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  24. Karsten Jeske & Sagiri Kitao, 2007. "U.S. tax policy and health insurance demand: can a regressive policy improve welfare?," FRB Atlanta Working Paper 2007-13, Federal Reserve Bank of Atlanta.
  25. 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.
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