Growth and Welfare Implications of Mortality Differentials in Unfunded Social Security Systems

Mark C. Kelly

Public Finance Review, 2022, vol. 50, issue 2, 206-235

Abstract: Several recent studies have examined the steady-state welfare implications of mortality differentials within unfunded Social Security systems, concluding that these differentials undermine the progressivity of the system and make society worse-off relative to alternative public pension schemes. This study is the first to systematically investigate the long-run implications of mortality inequality within the U.S. Social Security system. Utilizing an OLG endogenous growth model of the U.S. economy, I compare the current pay-as-you-go (PAYG) system to versions of the model without either mortality differentials or income inequality. I find that the assumption of mortality homogeneity biases the equilibrium growth rate and welfare analysis. The PAYG system is also compared to a fully funded system based on capital subsidies. The model predicts that PAYG suppresses growth and that, for a given range of subsidy rates, the fully funded system Pareto dominates PAYG in both the medium-run and the long-run.

Keywords: social security; mortality differentials; growth; demography; JEL Classification Number:; H55; D31; E60; O40 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:50:y:2022:i:2:p:206-235

DOI: 10.1177/10911421221101933

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