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Differential mortality and the progressivity of social security

Shantanu Bagchi

Journal of Public Economics, 2019, vol. 177, issue C, -

Abstract: There is a well-established negative correlation between earnings and mortality risk. Using a calibrated general-equilibrium macroeconomic model, this paper examines how this correlation interacts with the welfare implications of Social Security's benefit-earnings rule. My primary findings suggest that the welfare ranking of alternative benefit-earnings rules is somewhat sensitive to differential mortality. Due to their relatively high mortality risk, households with unfavorable earnings histories heavily discount the expected utility from old-age consumption, and therefore do not put much weight on better work-retirement consumption smoothing. Because of this reason, Social Security's benefit-earnings rule warrants less redistribution in the presence of differential mortality, compared to when mortality risk is uncorrelated to earnings. I find that this result continues to hold when household-level labor supply distortions are ignored, and also when an alternative “maximin” welfare criterion is considered, but not when accidental bequests from the deceased are redistributed to the survivors.

Keywords: Differential mortality; Social Security; Mortality risk; Labor income risk; Incomplete markets; Social insurance (search for similar items in EconPapers)
JEL-codes: E2 E6 H3 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Differential Mortality and the Progressivity of Social Security (2016) Downloads
Working Paper: Differential Mortality and the Progressivity of Social Security (2016) Downloads
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DOI: 10.1016/j.jpubeco.2019.07.003

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