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The Distributional Impact of Social Security

The Distributional Impact of Social Security
Author: Michael D. Hurd
Publisher:
Total Pages: 58
Release: 1983
Genre: Age groups
ISBN:
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In the first part of the paper we report estimated transfers in the Social Security system for the Retirement History Survey sample.We define transfers to be the difference between the expected presentvalue of benefits less the present value of taxes paid in, where the latter is adjusted for the probability of living to reach retirement age.Unlike previous researchers we, therefore, account for the taxes paid by people who died before retirement, and it turns out this adjustment is important for some groups. The Retirement History Survey cohort will receive large transfers: roughly benefits will be about four times taxes,and the real internal rate of return will be about eight percent. We study how transfers vary by a comprehensive measure of wealth. People in the highest wealth quartile have the largest absolute transfers, and their internal rate of return is as high as that of any wealth quartile.In the second part of the paper we study transfers forsix synthetic cohorts, the heads of which are age 65 in the ten-year intervals 1970 through 2020. Within each cohort 12 families are defined according to earnings levels.We find that transfers are positive and large for the 1970 cohort, and that they decline steadily until they are negative for most groups in the 2020 cohort. Although high earners initially have the largest transfers in the 1970 cohort, they have the largest negative transfers in the 2020 cohort.

The Distributional Effects of an Investment-based Social Security System

The Distributional Effects of an Investment-based Social Security System
Author: Martin S. Feldstein
Publisher:
Total Pages: 94
Release: 2000
Genre: Income distribution
ISBN:
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In this paper we study the distributional impact of a change from the existing pay-as-you-go Social Security system to one that combines both pay-as-you-go and investment-based elements. Critics of investment-based plans have been concerned that such plans might reduce the retirement income of low-paid workers or of surviving spouses relative to what they would get from Social Security, and might therefore increase the extent of poverty among the aged. Our analysis in this paper shows that this is generally not the case, even in plans that make no special effort to maintain or increase redistribution. Our principal finding is that virtually all of the demographic groups that we examine would receive higher average benefits under a mixed system with an investment-based component than the benefits that they would receive under current Social Security rules. There would also be a smaller share of individuals with benefits below the poverty line even though the total cost of funding the mixed system -- a three percent saving contribution rather than a six percent rise in the tax rate -- is substantially lower than that of funding the pay-as-you-go system. Our individual-level data permit us to go beyond comparing group means to analyze the full distribution of the benefits that individuals would receive under the two different systems. These comparisons show that the overwhelming majority of individuals would have higher benefits with the investment-based system than with the pure pay-as-you-go system. The relatively small number of individuals who would receive less from the investment-based system is further reduced when the effects of the Supplementary Security Income program is taken into account. These basic conclusions remain true even if the future rate of return in the investment-based component of the mixed system is substantially less than past experience implies.

The Distributional Effects of an Investment-Based Social Security System

The Distributional Effects of an Investment-Based Social Security System
Author: Martin S. Feldstein
Publisher:
Total Pages: 84
Release: 2010
Genre:
ISBN:
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In this paper we study the distributional impact of a change from the existing pay-as-you-go Social Security system to one that combines both pay-as-you-go and investment-based elements. Critics of investment-based plans have been concerned that such plans might reduce the retirement income of low-paid workers or of surviving spouses relative to what they would get from Social Security, and might therefore increase the extent of poverty among the aged. Our analysis in this paper shows that this is generally not the case, even in plans that make no special effort to maintain or increase redistribution. Our principal finding is that virtually all of the demographic groups that we examine would receive higher average benefits under a mixed system with an investment-based component than the benefits that they would receive under current Social Security rules. There would also be a smaller share of individuals with benefits below the poverty line even though the total cost of funding the mixed system -- a three percent saving contribution rather than a six percent rise in the tax rate -- is substantially lower than that of funding the pay-as-you-go system. Our individual-level data permit us to go beyond comparing group means to analyze the full distribution of the benefits that individuals would receive under the two different systems. These comparisons show that the overwhelming majority of individuals would have higher benefits with the investment-based system than with the pure pay-as-you-go system. The relatively small number of individuals who would receive less from the investment-based system is further reduced when the effects of the Supplementary Security Income program is taken into account. These basic conclusions remain true even if the future rate of return in the investment-based component of the mixed system is substantially less than past experience implies.

The Distributional Aspects of Social Security and Social Security Reform

The Distributional Aspects of Social Security and Social Security Reform
Author: Martin Feldstein
Publisher: University of Chicago Press
Total Pages: 481
Release: 2007-11-01
Genre: Political Science
ISBN: 0226241890
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Social security is the largest and perhaps the most popular program run by the federal government. Given the projected increase in both individual life expectancy and sheer number of retirees, however, the current system faces an eventual overload. Alternative proposals have emerged, ranging from reductions in future benefits to a rise in taxrevenue to various forms of investment-based personal retirement accounts. As this volume suggests, the distributional consequences of these proposals are substantially different and may disproportionately affect those groups who depend on social security to avoid poverty in old age. Together, these studies persuasively show that appropriately designed investment-based social security reforms can effectively reduce the long-term burden of an aging society on future taxpayers, increase the expected future income of retirees, and mitigate poverty rates among the elderly.

The Distributional Impact of Taxes and Transfers

The Distributional Impact of Taxes and Transfers
Author: Gabriela Inchauste
Publisher: World Bank Publications
Total Pages: 402
Release: 2017-09-19
Genre: Business & Economics
ISBN: 1464810923
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The World Bank has partnered with the Commitment to Equity Institute at Tulane University to implement their diagnostic tool—the Commitment to Equity (CEQ) Assessment—designed to assess how taxation and public expenditures affect income inequality, poverty, and different economic groups. The approach relies on comprehensive fiscal incidence analysis, which measures the contribution of each individual intervention to poverty and inequality reduction as well as the combined impact of taxes and social spending. The CEQ Assessment provide an evidence base upon which alternative reform options can be analyzed. The use of a common methodology makes the results comparable across countries. This volume presents eight country studies that examine the distributional effects of individual programs and policy measures—and the net effect of each country’s mix of policies and programs. These case studies were produced in the context of Bank policy dialogue and have since been used to propose alternative reform options.

Distributional Effects of Means Testing Social Security

Distributional Effects of Means Testing Social Security
Author: Alan L. Gustman
Publisher:
Total Pages: 0
Release: 2014
Genre: Economics
ISBN:
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This paper examines the distributional implications of introducing additional means testing of Social Security benefits where proceeds are used to help balance Social Security's finances. Benefits of the top quarter of households ranked according to the relevant measure of means are reduced using a modified version of the Social Security Windfall Elimination Provision (WEP). The replacement rate in the first bracket of the benefit formula, determining the Primary Insurance Amount (PIA), would be reduced from 90 percent to 40 percent of Average Indexed Monthly Earnings (AIME). Four measures of means are considered: total wealth; an annualized measure of AIME; the wealth value of pensions; and a measure of average indexed lifetime W2 earnings. The empirical analysis is based on data from the Health and Retirement Study. These means tests would reduce total lifetime household benefits by 7 to 9 percentage points. We find that the basis for means testing Social Security makes a substantial difference as to which households have their benefits reduced, and that different means tests may have different effects on the benefits of families in similar circumstance. We also find that the measure of means used to evaluate the effects of a means test makes a considerable difference as to how one would view the effects of the means test on the distribution of benefits.

Distributional Effects of Social Security Reforms

Distributional Effects of Social Security Reforms
Author: Raquel Fonseca
Publisher:
Total Pages: 0
Release: 2020
Genre:
ISBN:
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This paper assesses the impact of two social security reforms using a calibrated, dynamic life cycle model. It quantifies the long-run distributional impact of two sets of reforms in France: (1) the 2013 reform of Prime Minister Ayrault, which modified the parameters of a defined benefit (DB) plan, and (2) a hypothetical reform that changes the system to a notional defined contribution (NDC) plan, similar to that in Italy. First, on aggregate welfare, the Ayrault reform and the hypothetical switch to NDC yield contrasting results. The Ayrault reform improves aggregate welfare, which is not the case for the NDC reform. Welfare comparisons are made with respect to the “benchmark economy,” where increases in life expectancy occur and are dealt with only through a higher contribution rate. Second, both reforms yield unequal distributions of welfare changes, with low-skill workers on the losing end. Under the Ayrault reform, low-skill workers delay retirement by two years, to age 62. Under NDC reform, pensions for low-skill workers fall substantially as inequalities during the work life translate directly into inequalities in pensions. The switch to an NDC scheme leads to a more unequal society in terms of asset and welfare distribution. Les effets redistributifs des réformes de retraite: le cas de la France. Cet article utilise un modèle de cycle de vie dynamique calibré pour quantifier l'impact distributif à long terme de deux réformes du système de retraite en France: (1) la réforme Ayrault de 2013, qui modifie les paramètres d'un système à prestations déterminées (PD); (2) un passage hypothétique à un système de comptes notionnels à cotisation déterminé (NDC), comme en Italie. Tout d'abord, les deux réformes donnent lieu à des résultats opposés en terme de bien-être aggrégé. La réforme Ayrault améliore le bien-être total, ce qui n'est pas de la réforme NDC. Les comparaisons de bien-être sont effectuées par rapport à une économie de référence caractérisée par une hausse de l'espérance de vie et des taux de cotisation. De plus, les réformes donnent lieu à des distributions inégales du bien-être, avec les travaileurs peu qualifiés dans la queue de distribution. En effet, la réforme Ayrault les contraint à travailler deux années supplémentaires, jusqu'à l'âge de 62 ans. Le système NDC conduit à une réduction marquée des pensions de retraite, en particulier pour les travailleurs peu qualifiés, les inégalités au cours de la vie active se répercutant sur le montant des pensions. Le passage au système NDC se traduirait par une hausse des inégalités de patrimoine financier et de bien-être.