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Distributional Impacts of Proposed Changes to the Social Security System

  • Julia Lynn Coronado
  • Don Fullerton
  • Thomas Glass

In this paper we assess the degree to which the current social security system redistributes income from rich to poor. We then estimate the impact of various proposed changes to social security on the overall redistributive effect of the system. Our analysis takes a steady state approach in which we assume participants work their entire lives and retire under a given system. Redistribution is measured on a lifetime basis using estimated earnings profiles for a sample of people taken from the PSID. We account for differential mortality, not only by gender and race, but also be lifetime income. Our results indicate that the current social security system redistributes less than is generally perceived, mainly because people with higher lifetime income live longer and therefore draw benefits longer. Remaining progressivity is reduced and even reversed by an increase in the assumed discount rate, since regressive taxes become more important relative to later progressive benefits. We find that many of the proposed changes to social security have surprising little effect on the redistribution inherent in the system.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6989.

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Date of creation: Mar 1999
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Publication status: published as Distributional Impacts of Proposed Changes to the Social Security System , Julia Lynn Coronado, Don Fullerton, Thomas Glass. in Tax Policy and the Economy, Volume 13 , Poterba. 1999
Handle: RePEc:nbr:nberwo:6989
Note: PE
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  1. Garrett, Daniel M, 1995. "The Effects of Differential Mortality Rates on the Progressivity of Social Security," Economic Inquiry, Western Economic Association International, vol. 33(3), pages 457-75, July.
  2. Steven Caldwell & Melissa Favreault & Alla Gantman & Jagadeesh Gokhale & Thomas Johnson & Laurence J. Kotlikoff, 1999. "Social Security's Treatment of Postwar Americans," NBER Chapters, in: Tax Policy and the Economy, Volume 13, pages 109-148 National Bureau of Economic Research, Inc.
  3. Julia Lynn Coronado & Don Fullerton & Thomas Glass, 2000. "The Progressivity of Social Security," NBER Working Papers 7520, National Bureau of Economic Research, Inc.
  4. Burkhauser, Richard V & Warlick, Jennifer L, 1981. "Disentangling the Annuity from the Redistributive Aspects of Social Security in the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 27(4), pages 401-21, December.
  5. Harriet Orcutt Duleep, 1986. "Measuring the Effect of Income on Adult Mortality Using Longitudinal Administrative Record Data," Journal of Human Resources, University of Wisconsin Press, vol. 21(2), pages 238-251.
  6. Gramlich, Edward M, 1996. "Different Approaches for Dealing with Social Security," American Economic Review, American Economic Association, vol. 86(2), pages 358-62, May.
  7. Panis, C.W.A. & Lillard, L.A., 1996. "Socioeconomic Differentials in the Returns to Social Security," Papers 96-05, RAND - Labor and Population Program.
  8. Michael J. Boskin & Laurence J. Kotlikoff & Douglas J. Puffert & John B. Shoven, 1987. "Social Security: A Financial Appraisal Across and Within Generations," NBER Working Papers 1891, National Bureau of Economic Research, Inc.
  9. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  10. Michael D. Hurd & John B. Shoven, 1983. "The Distributional Impact of Social Security," NBER Working Papers 1155, National Bureau of Economic Research, Inc.
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