Does Medicare benefit the poor?

Measuring the progressivity of age-targeted government programs is difficult because no single data set measures income and benefit use throughout life. Previous research, using zip code as a proxy for lifetime income, has found that Medicare benefits flow primarily to the most economically advantaged groups, and that the financial returns to Medicare are often higher for the rich than the poor. However, our analysis produces the starkly opposed result that Medicare is an extraordinarily progressive public program, in dollar terms or welfare terms. These new results owe themselves to our measurement of socioeconomic status as an individual's education, rather than the geographically aggregated measures of income used by previous research. We argue that individual education has important practical and conceptual advantages over geographically aggregated measures of income. Our results suggest the crucial importance of accurate poverty measurement in evaluating the progressivity of complex government programs like Medicare or Social Security.     

Home production and Social Security reform

This paper incorporates home production into a dynamic general equilibrium model of overlapping generations with endogenous retirement to study Social Security reforms. Specifically, home production takes housing, home input, and home hours as inputs and produces a good that is substitutable with market good. As such, the model differentiates both consumption goods and labor effort according to their respective roles in home production and market activities. Using a calibrated model, we conduct a policy experiment where we eliminate the current pay-as-you-go Social Security system. We find that the experiment has important implications for labor supply as well as consumption decisions and that these decisions are influenced by the presence of the home production technology. More importantly, comparing our economy to a one-good economy without home production, the welfare gains of eliminating Social Security are magnified significantly especially in the long run. The reasons are twofold and related to the general aspects of home production. First, home production implies a more elastic labor supply rendering the payroll labor tax more distortionary. Second, home production introduces insurance possibilities that are not present when only market-produced goods are available and, thus, reduces the need for government redistributive policies.     

Privatizing Social Security in the United States—Comparing the Options

This paper uses a new version of the Auerbach–Kotlikoff model to consider alternative ways to privatize the U.S. Social Security System. The new model incorporates intra- and intergenerational heterogeneity and is closely calibrated to U.S. fiscal institutions. Three privatization issues are considered: financing the transition, participation rules, and progressivity. As shown, Social Security's privatization can substantially raise long-run living standards. But these gains come at the cost of welfare losses to transition generations and take a long time to materialize. The long-run poor have much to gain from privatization even absent an explicit redistribution mechanism. Finally, privatizations that give initial workers the option of remaining in the current system have particularly low transition costs and particularly favorable macroeconomic consequences. Journal of Economic Literature Classification Numbers: D9, E6.     

Income tax policy and lifetime labor supply

A progressive income tax structure provides incentives for individuals to alter their rate of work and their age of retirement. Compared to a zero tax or proportional tax equilibrium, progressive taxation induces individuals to take less leisure in the form of retirement in exchange for more leisure during the worklife, especially at high wage levels. The imposition of a special pension tax provision on top of a progressive tax structure offsets the distortion on leisure alternatives imposed by progressivity. Indeed, the pension tax deferral provision can neutralize the impact of tax progressivity on the work profile over life. The magnitude of these tax inducements in the U.S. tax structure are non-trivial and therefore are expected to alter labor supply decisions over the lifetime. The model finds empirical support using data from the Social Security Newly Entitled Beneficiaries Survey.     

Social Security Benefit Uncertainty under Individual Accounts

Social Security reforms that include individual accounts change both the expected benefit and the benefit risk. This article uses a long-term stochastic forecasting model to estimate the distribution of expected benefits under a simple individual account, recognizing uncertainties in the current system. Introducing individual accounts increases the overall variability of benefit levels relative to current law; indeed the standard deviations of expected benefit gains exceed the level of those gains. The increase in uncertainty about benefit replacement rates is even larger, however, because individual accounts partially sever the link between earnings and benefits in the existing system. (JEL H55)     

Lifetime versus Annual Tax‐and‐Transfer Progressivity: Sweden, 1968–2009

In this paper, we analyze the evolution of tax‐and‐transfer progressivity in Sweden over both annual and lifetime horizons. Using a rich micro panel covering the period 1968–2009, we calculate tax rates over a cohort's entire working life cycle. Our main finding is that taxes are considerably less progressive over the lifetime than in any single year. Social insurance transfers to transitory low‐income earners account for most of this result. We offer a number of robustness checks of the measurement of lifetime incomes and progressivity, but none of them changes our overall findings.     

Reinforcing the Link Between Contributions and Pensions: The Effect of the Population Aging

In this paper, we analyze a majority voting process on the earnings-related part of pension benefits in a Social Security system with flexible retirement. We show that the aging of the population may make it easier to implement one of the proposed reforms to achieve a delay in the average retirement age of workers, to reinforce the link between contributions and pensions.     

Labor supply responses to marginal Social Security benefits: Evidence from discontinuities

A key question for Social Security reform is whether workers respond to the link on the margin between the Social Security taxes they pay and the Social Security benefits they will receive. We estimate the effects of the marginal Social Security benefits that accrue with additional earnings on three measures of labor supply: retirement age, hours, and labor earnings. We develop a new approach to identifying these incentive effects by exploiting five provisions in the Social Security benefit rules that generate discontinuities in marginal benefits or non-linearities in marginal benefits that converge to discontinuities as uncertainty about the future is resolved. We find that individuals approaching retirement (age 52 and older) respond to the Social Security tax-benefit link on the extensive margin of their labor supply decisions: we estimate that a 10% increase in the net-of-tax share reduces the two-year retirement hazard by a statistically significant 2.0 percentage points from a base rate of 15%. The evidence with regard to labor supply responses on the intensive margin is more mixed: we estimate that the elasticity of hours with respect to the net-of-tax share is 0.42 and statistically significant, but we do not find a statistically significant earnings elasticity. Though we lack statistical power to estimate results within subsamples precisely, the retirement response is driven mostly by the female subsample, while the hours response comes from the male subsample.     

Social security generosity,budgetary deficits and reforms in North Cyprus

This paper estimates the fiscal burden of the historical pay-as-you-go (PAYGO) Social Insurance Pension System in North Cyprus and analyzes the appropriateness of the 2008 reforms that introduced the new Social Security Pension System. Estimates are made of the system deficit. To bring the magnitude of the unfunded cost of the pension system down to a sustainable level, major parametric reforms will need to be made to the system. These include increasing the age of retirement, increasing the rate of contributions, changing the method of indexing of pension benefits and decreasing the theoretical replacement rate of the pension benefits.     

PROGRESSIVITY AND REDISTRIBUTION IN NON‐REVENUE NEUTRAL TAX REFORMS: THE LEVEL AND DISTANCE EFFECTS

Kakwani and Reynolds–Smolensky indices are used in the literature to measure the progressivity and redistributive capacity of taxes. These indices may, however, show some limits when used to make normative assessments about non‐revenue neutral tax reforms. Two approaches have traditionally been taken to overcome this problem. The first of these consists of comparing after‐tax income distributions through generalized Lorenz (concentration) curves. The second approach is based on the decomposition of changes in the Reynolds–Smolensky index into changes in the average tax rate and variations in progressivity. Nonetheless, this decomposition between the average tax rate and progressivity may be further exploited to obtain some information that can be relevant to assess tax reforms. The main aim of this study is to draw up some indicators that can be useful to quantify the effects of non‐revenue neutral tax reforms. These indicators are used to investigate the last personal income tax reforms that have taken place in Spain.     

The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour

This paper estimates a life cycle model of labour supply, retirement, and savings behaviour in which future health status and wages are uncertain. Individuals face a fixed cost of work and cannot borrow against future labour, pension, or Social Security income. The method of simulated moments is used to match the life cycle profiles of labour force participation, hours worked, and assets that are estimated from the data to those that are generated by the model. The model establishes that the tax structure of the Social Security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65. Removing the tax wedge embedded in the Social Security earnings test for individuals aged 65 and older would delay job exit by almost one year. By contrast, Social Security benefit levels, health, and borrowing constraints are less important determinants of job exit at older ages. For example, reducing Social Security benefits by 20% would cause workers to delay exit from the labour force by only three months.     

Flat tax? Maybe not a bad idea after all

This work studies the actual degree of progressivity in the Italian tax and transfer system and examines possible reforms towards the optimum. It analyzes the distribution of personal income and effective tax rates across the Italian population, computing income and tax liabilities from survey data, and studies the optimal level of progressivity. To this end, it uses a model developed in Heathcote et al. (2017) with heterogeneous agents where skill investment and labor supply are endogenous and the government provides a public good under a balanced budget. All the main tradeoffs that shape optimal progressivity appear: the presence of inequality in initial conditions and imperfect private insurance push for positive progressivity, whereas labor supply and skill investment call for regressivity. The model suggests a drastic reduction in progressivity under both the baseline and the alternative specifications. In particular, it calls for substantial reductions in marginal tax rates above approximately 0.25 times the mean income along with increased tax rates at the lower end of the income distribution. These reforms may be approximated by a flat tax at 29% under the baseline and at 32.5% under the alternative specification, holding the required positive level of progressivity constant.     

On the Pro-Social Security Rhetoric

We propose to reframe Social Security to offer a coherent anti-privatization rhetoric that has not been fully provided in the contemporary literature. The dissatisfaction that motivated this study centers on the observation that the prevalent anti-privatization rhetoric exposes the drawbacks of Private Retirement Accounts (PRAs), but this rhetoric itself doesn't satisfactorily explain why the current Social Security system is more desirable. In reframing Social Security, we will follow a two-stage strategy. First, we will articulate the desirability of Social Security grounded in the function it serves in a way PRAs are not suited for serving: being a social income insurance scheme whose provision inherently favors the least fortunate in a Rawlsian fashion. Second, we will concentrate how Social Security provides this non-market choice by drawing on the unique resources not entirely available to the market.     

Financial incentives and retirement: evidence from federal civil service workers

We examine the retirement behavior of federal civil service workers employed by the Department of Defense. These workers provide an interesting population for studying retirement because they face relatively simple financial incentives, high quality administrative data are available, and they are not covered by the Social Security system. We find that these workers respond to their financial incentives in a similar manner to what others have found when analyzing much different retirement systems. We also find no evidence of “excess retirement” at key ages of the Social Security system, which does not support the existence of societal-wide norms regarding retirement.     

1990—2010年中国人口预期寿命与人均GDP的相关关系及其变化特征

预期寿命是反映人口寿命水平的重要指标,人均GDP是反映经济发展的重要指标。采用相关分析和回归分析对中国1990—2010年市域、县域两个尺度的预期寿命与人均GDP的关系进行分析,结果表明:人均GDP对预期寿命具有显著正向影响,但累积影响强于即时影响;人均GDP超过3000~5000元后,其对预期寿命的影响开始出现边际递减效应;人均GDP对预期寿命的影响强度在空间分布上自东向西增强。由于经济相对发达的东部地区人均GDP对预期寿命的贡献率要小于经济相对落后的西部地区,因此,今后东部地区应通过完善社会保障、优化卫生资源配置、倡导健康生活方式等途径进一步提高预期寿命,西部地区则应大力发展区域经济,努力提高生活水平,以尽快缩小与东部地区预期寿命的差距。     

Do the French pension reforms increase re-employment of older unemployed workers?

ABSTRACT

The sustainability of Social Security financing has pushed authorities to reform their policy to increase the labour market participation of older workers. While most of the studies have focused on the consequences of pension reform on retirement decisions, we analyse the effects of two French pension reforms, which increased the period of contribution and the minimum retirement age, on transitions out of unemployment and into employment with a difference-in-differences approach. We find that both retirement reforms have positive effects on the re-employment of older unemployed workers. The pension reforms are also accompanied by an increase of the transitions into inactivity. The results suggest that the reforms have delivered significant effects by reducing the unemployment of older workers.     

Explaining the wealth holdings of different cohorts: Productivity growth and Social Security

In this paper, we explore the reasons why different generations accumulate different amounts of wealth. We use basic economic theory to propose two indicators of the economic conditions under which households accumulate wealth. The first one represents productivity differences across cohorts: The aggregate level of gross national product per capita around the time the head of the household entered the labor market. The second measure summarizes the changes in Social Security during the head of household's working life. Using panel data from the Dutch Socio-Economic Panel, we show that productivity growth can explain all the cohort effects present in income data, while productivity growth and the generosity of Social Security can explain all the cohort effects present in household net worth. We also find a limited offset of Social Security on wealth holdings.     

Optimal retirement age,leisure and consumption

In this paper, we study the determination of optimal retirement age, optimal leisure time, and optimal consumption, and we also analyze their relationships using an optimal control theory. We establish a life cycle model and analyze the factors of consumption, leisure, saving, mortality and retirement behaviors simultaneously with an orthogonal-array experimental design. Our results show that the initial salary level and the growth rate of salary are the most important determining factors of the optimal retirement age. The initial consumption level and the interest rate are also important factors affecting optimal retirement age. The mortality improvement has a minor effect on the optimal retirement age. The effects of the Social Security on the optimal retirement age depend on the Social Security tax and the level of Social Security benefit.     

HOW WELL DID SOCIAL SECURITY MITIGATE THE EFFECTS OF THE GREAT RECESSION?

Using a computational life cycle model, this article assesses how Social Security affects the welfare of different types of individuals during the Great Recession. Overall, we find that Social Security reduces the average welfare losses for agents alive at the time of the Great Recession by the equivalent of 1.4% of expected future lifetime consumption. Moreover, we show that although the program mitigates some of the welfare losses for most agents, it is particularly effective at mitigating the losses for agents who are poorer and/or older at the time of the shock.     

Projected U.S. Demographics and Social Security

Without policy reforms, the aging of the U.S. population is likely to increase the burden of the currently unfunded Social Security and Medicare systems. In this paper we build an applied general equilibrium model and incorporate the population projections made by the Social Security Administration (SSA) to evaluate the macroeconomic and welfare implications of alternative fiscal responses to the retirement of the baby-boomers. Our calculations suggest that it will be costly to maintain the benefits at the levels now promised because the increases in distortionary taxes required to finance those benefits will reduce private saving and labor supply. We also find that the “accounting calculations” made by the SSA underestimate the required fiscal adjustments. Finally, our results confirm that policies with similar long-run characteristics have very different transitional implications for the distribution of welfare across generations. Journal of Economic Literature Classification Numbers: D52, D58, E21, E62.