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Differential Mortality and the Progressivity of Social Security

Shantanu Bagchi ()

No 2016-03, Working Papers from Towson University, Department of Economics

Abstract: 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.

Keywords: Differential mortality; Social Security; taxable maximum; mortality risk; labor income risk; incomplete markets; general equilibrium. (search for similar items in EconPapers)
JEL-codes: E21 E62 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dge, nep-hea, nep-ias, nep-lab and nep-mac
Date: 2016-02, Revised 2016-08
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