Hostname: page-component-78c5997874-g7gxr Total loading time: 0 Render date: 2024-11-19T01:15:50.514Z Has data issue: false hasContentIssue false
  • English
  • Français

SOCIAL SECURITY EVALUATION: A CRITIQUE

Published online by Cambridge University Press:  01 February 2005

JORGE SOARES
JORGE SOARES
Affiliation:
George Washington University
Get access Rights & Permissions [Opens in a new window]

Abstract

I study the bias of actuarially fair measures commonly used to evaluate the impact of a social security system on the well-being of individuals. I investigate how the magnitude of this bias is affected by different features of a pay-as-you-go social security system. Social security affects an individual's welfare in ways other than through its direct effect on her lifetime income. It influences labor and savings decisions and hence factor prices, affecting labor income and the return to savings. Although social security can provide insurance against risk, it can also push borrowing-constrained individuals further away from their optimal consumption paths. I show that, by ignoring these features, actuarially fair measures can grossly misevaluate the impact of social security on the well-being of an individual.

Keywords

Social SecurityWelfare MeasureActuarial FairnessGeneral EquilibriumInsuranceBorrowing Constraints
Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 9 , Issue 1 , February 2005 , pp. 57 - 97
Copyright
© 2005 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Altig D., A.J. Auerbach, L.J. Kottikoff, K.A. Smetters, & J. Walliser 2001 Simulating fundamental tax reform in the United States. American Economic Review 91, 574– 595.Google Scholar
Auerbach A.J. & L.J. Kotlikoff 1987 Dynamic Fiscal Policy. Cambridge, UK: Cambridge University Press.
Boskin M.J., L.J. Kotlikoff, D.J. Puffert, & J.B. Shoven 1987 Social security: A financial appraisal across and within generations. National Tax Journal 40, 19– 34.Google Scholar
Caldwell S.B., M. Favreault, A. Gantman, J. Gokhale, T. Johnson, & L.J. Kotlikoff 1999 Social Security's treatment of postwar Americans. Tax Policy and the Economy 13, 109– 148.Google Scholar
Carroll C. & A. Samwick 1997 The nature of precautionary wealth. Journal of Monetary Economics 40, 41– 71.Google Scholar
Conesa J. & D. Krueger 1999 Social Security reform with heterogeneous agents. Review of Economic Dynamics 2, 757– 795.Google Scholar
Cooley T.F. & E. Prescott 1995 Economic growth and business cycles. In T.F. Cooley (ed.), Frontiers of Business Cycle Research, pp. 1– 38. Princeton, NJ: Princeton University Press.
Cooley T.F. & J. Soares 1999 A positive theory of social security based on reputation. Journal of Political Economy 107, 135– 160.Google Scholar
Coronado J.L., D. Fullerton, & T. Glass 1999 Distributional impacts of proposed changes to the Social Security system. Tax Policy and the Economy 13, 149– 186.Google Scholar
Diamond P. & J. Gruber 1999 Social Security and retirement in the U.S. In J. Gruber & D.A. Wise (eds.), Social Security and Retirement Around the World, pp. 437– 474. Chicago: University of Chicago Press.
Eckstein Z., M. Eichenbaum, & D. Pelde 1985 Uncertain lifetimes and the welfare-enhancing properties of annuity markets and social security. Journal of Public Economics 26, 303– 326.Google Scholar
Faber J.F. 1982 Life Tables for the United States: 1900–2050. U.S. Department of Health and Human Services, Actuarial Study 87.
Feldstein M. & A. Samwick 1992 Social Security rules and marginal tax rates. National Tax Journal 45, 1– 22.Google Scholar
Feldstein M. & A. Samwick 1998 The transition path in privatizing social security. In M. Feldstein (ed.), Privatizing Social Security, pp. 215– 260. Chicago: University of Chicago Press.
Glomm G. & M. Kaganovich 2003 Distributional effects of public education in an economy with public pensions. International Economic Review 44, 917– 937.Google Scholar
Gokhale J. & L.J. Kotlikoff 1999 Social Security's treatment of Postwar Americans: How Bad Can It Get? NBER working paper W7362.
Hansen G.D. 1993 The cyclical and secular behavior of labor input: Comparing efficiency units and hours worked. Journal of Applied Econometrics 8, 71– 80.Google Scholar
Hubbard R.G. 1987 Uncertain lifetimes, pensions and individual saving. In Z. Bodie, J. Shoven, & D.A. Wise (eds.), Issues in Pension Economics, pp. 175– 206. Chicago: University of Chicago Press.
Hubbard R.G. & K.L. Judd 1987 Social Security and individual welfare: Precautionary savings, liquidity constraints, and the payroll tax. American Economic Review 77, 630– 646.Google Scholar
Huggett M. & G. Ventura 1999 On the distributional effects of Social Security reform. Review of Economic Dynamics 2, 498– 531.Google Scholar
Hurd M. & J. Shoven 1985 The distributional impact of Social Security. In D.A. Wise (ed.), Pensions, Labor and Individual Choice, pp. 193– 215. Chicago: University of Chicago Press.
Imrohoroglu A., S. Imrohoroglu, & D. Joines 1995 A life cycle analysis of Social Security. Economic Theory 6, 83– 114.Google Scholar
Krusell P. & A. Smith 1998 Income and wealth heterogeneity and the macroeconomy. Journal of Political Economy 106, 867– 896.Google Scholar
Nichols O. & R.G. Schreitmueller 1978 Some comparisons of the value of a worker's Social Security taxes and benefits. Actuarial Note 95, Social Security Administration.
Outslay E. & J.E. Wheeler 1982 Separating the annuity and income transfer elements of Social Security. Accounting Review 57, 716– 733.Google Scholar
Pellechio A. & G. Goodfellow 1983 Individual gains and losses from social security before and after the 1983 amendments. Cato Journal 3, 417– 442.Google Scholar
Rothschild M. & J. Stiglitz 1976 Equilibrium in competitive insurance markets: An essay on the economics of imperfect information. Quarterly Journal of Economics 90, 629– 650.Google Scholar
Samwick A. 1998 Discount rate heterogeneity and Social Security reform. Journal of Development Economics 57, 117– 146.Google Scholar
Shiller R.J. 1999 Social Security and institutions for intergenerational, intragenerational, and international risk-sharing. Carnegie-Rochester Public Policy Conference 50, 165– 204.Google Scholar
Soares J. 2002 Public education reform: Community or national funding of education? Journal of Monetary Economics (forthcoming).Google Scholar
Steuerle C.E. & J.M. Bakija 1997 Retooling Social Security for the 21st century. Social Security Bulletin 60.Google Scholar