Why hasn't Social Security changed since 1977?

Pavel Brendler

Review of Economic Dynamics, 2020, vol. 36, 134-157

Abstract: Despite increasing earnings inequality and aging population, there has been no major reform of Social Security since 1977. To account for this puzzling observation, I construct a heterogeneous agent model with incomplete financial markets. There is a government who chooses the replacement rate schedule by maximizing the weighted welfare of all generations alive. I specify the Pareto weights as a function of household's age and identify them both in 1977 and 2018. I find that there was a slight bias towards younger workers in 1977. However, the bias has shifted towards older households in 2018. This shift is a result of counteracting forces induced by: 1) population aging and 2) increased labor productivity risk and increased college premium. The effect of population aging turns out to be stronger quantitatively. (Copyright: Elsevier)

Keywords: Economic inequality; Optimal tax; Pareto weights; Political inequality; Redistribution; Social Security (search for similar items in EconPapers)
JEL-codes: D3 D52 E62 H21 H55 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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DOI: 10.1016/j.red.2019.09.001

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