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Differential Mortality by Income and Social Security Progressivity

Author

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  • Gopi Shah Goda

    () (Stanford Institute for Economic Policy Research, Stanford University)

  • John Shoven

    () (Stanford Institute for Economic Policy Research, Stanford University)

  • Sita Slavov

    (Department of Economics, Occidental College)

Abstract

There is a widespread belief that people with low lifetime labor income have higher age specific mortality and lower remaining life expectancies at age 60 or 65 than those with middle or high lifetime earnings. In this paper, we assess the implications of differential mortality by lifetime income for Social Security progressivity. Social Security has a highly progressive formula to determine monthly benefits in that those with low lifetime earnings get a much higher replacement rate than those with high lifetime earnings. However, recent studies on the mortality gap by lifetime income suggest that at least some of this progressivity is counterbalanced by the longer average lifetimes experienced by higher lifetime income recipients of Social Security. To reassess the progressivity of Social Security, we calculate internal rates of return and net present values for the program under assumptions of differential mortality and compare these measures of progressivity to the same measures calculated assuming all individuals experience average population mortality rates. Under the assumption of constant mortality across lifetime income subgroups, the Social Security system is progressive regardless of the measure shown. However, a good deal of the progressivity is undone or even reversed when differential mortality is taken into account.

Suggested Citation

  • Gopi Shah Goda & John Shoven & Sita Slavov, 2009. "Differential Mortality by Income and Social Security Progressivity," Discussion Papers 08-061, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:08-061
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    References listed on IDEAS

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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 457-475, July.
    2. Jeffrey B. Liebman, 2002. "Redistribution in the Current U.S. Social Security System," NBER Chapters,in: The Distributional Aspects of Social Security and Social Security Reform, pages 11-48 National Bureau of Economic Research, Inc.
    3. Coronado Julia Lynn & Fullerton Don & Glass Thomas, 2011. "The Progressivity of Social Security," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-45, November.
    4. James E Duggan & Robert Gillingham & John S Greenlees, 2008. "Mortality and Lifetime Income: Evidence from U.S. Social Security Records," IMF Staff Papers, Palgrave Macmillan, vol. 55(4), pages 566-594, December.
    5. Julian P. Cristia, 2007. "The Empirical Relationship Between Lifetime Earnings and Mortality: Working Paper 2007-11," Working Papers 19096, Congressional Budget Office.
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    Citations

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    Cited by:

    1. Matthew Weinzierl, 2014. "Seesaws and Social Security Benefits Indexing," NBER Working Papers 20671, National Bureau of Economic Research, Inc.
    2. Isabelle Joumard & Mauro Pisu & Debbie Bloch, 2012. "Tackling income inequality: The role of taxes and transfers," OECD Journal: Economic Studies, OECD Publishing, vol. 2012(1), pages 37-70.
    3. Isabelle Joumard & Mauro Pisu & Debra Bloch, 2012. "Less Income Inequality and More Growth – Are They Compatible? Part 3. Income Redistribution via Taxes and Transfers Across OECD Countries," OECD Economics Department Working Papers 926, OECD Publishing.
    4. Alan L. Gustman & Thomas L. Steinmeier & Nahid Tabatabai, 2011. "The Effects of Changes in Women's Labor Market Attachment on Redistribution Under the Social Security Benefit Formula," NBER Working Papers 17439, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Social Security; Mortality Gap; Differential Mortality; Lifetime Income;

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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