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Differential Mortality and the Progressivity of Social Security

Listed author(s):
  • Shantanu Bagchi

    ()

    (Department of Economics, Towson University)

I examine if the positive correlation between wealth and survivorship has any implications for the progressivity of Social Security's benefit-earnings rule. Using a general-equilibrium macroe- conomic model calibrated to the U.S. economy, I show that the optimal Social Security arrange- ment is largely insensitive to wealth-dependent mortality risk. This is because while a more progressive benefit-earnings rule provides increased insurance for households with relatively un- favorable earnings histories, labor supply, savings, and therefore survivorship, their relatively high mortality risk heavily discounts the utility from old-age consumption. I find that these two effects roughly offset each other, yielding nearly identical benefit-earnings rules both with and without differential mortality.

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File URL: http://webapps.towson.edu/cbe/economics/workingpapers/2016-03.pdf
File Function: First version, 2016
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Paper provided by Towson University, Department of Economics in its series Working Papers with number 2016-03.

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Length: 27 pages
Date of creation: Feb 2016
Date of revision: Aug 2016
Handle: RePEc:tow:wpaper:2016-03
Contact details of provider: Postal:
Towson, Maryland 21252-0001

Phone: 410-704-2959
Fax: 410-704-3424
Web page: http://www.towson.edu/cbe/departments/economics/

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