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Social Security Reform with Heterogeneous Mortality

John Jones () and Yue Li

No 20-09, Working Paper from Federal Reserve Bank of Richmond

Abstract: Using a heterogeneous-agent, life-cycle model of Social Security claiming, labor supply and saving, we consider the implications of lifespan inequality for Social Security reform. Quantitative experiments show that welfare is maximized when baseline benefits are independent of lifetime earnings, the payroll tax cap is kept roughly unchanged, and claiming adjustments are reduced. Eliminating the earnings test and the income taxation of Social Security benefits provides additional gains. The Social Security system that would maximize welfare in a "2050 demographics" scenario, characterized by longer lifespans and an increased education-mortality gradient, is similar to the one that would maximize welfare today.

Keywords: Social security; Mortality; Labor Supply; Welfare (search for similar items in EconPapers)
JEL-codes: E21 H24 H55 I38 J11 (search for similar items in EconPapers)
Pages: 67
Date: 2020-07-17
New Economics Papers: this item is included in nep-age, nep-dge, nep-mac and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedrwp:88806

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DOI: 10.21144/wp20-09

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