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How Well Did Social Security Mitigate the Effects of the Great Recession?

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Abstract

This paper quantifies the welfare implications of the U.S. Social Security program during the Great Recession. We find that the average welfare losses due to the Great Recession for agents alive at the time of the shock are notably smaller in an economy with Social Security relative to an economy without a Social Security program. Moreover, Social Security is particularly effective at mitigating the welfare losses for agents who are poorer, less productive, or older at the time of the shock. Importantly, in addition to mitigating the welfare losses for these potentially more vulnerable agents, we do not find any specific age, income, wealth or ability group for which Social Security substantially exacerbates the welfare consequences of the Great Recession. Taken as a whole, our results indicate that the U.S. Social Security program is particularly effective at providing insurance against business cycle episodes like the Great Recession.

Suggested Citation

  • William B. Peterman & Kamila Sommer, 2014. "How Well Did Social Security Mitigate the Effects of the Great Recession?," Finance and Economics Discussion Series 2014-13, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2014-13
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    References listed on IDEAS

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    Cited by:

    1. Xu, Shaofeng, 2016. "On the welfare cost of rare housing disasters," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 301-318.
    2. Sewon Hur, 2018. "The Lost Generation of the Great Recession," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 179-202, October.

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    Keywords

    Social Security; recessions; overlapping generations;
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