Differential Mortality and the Progressivity of Social Security

Shantanu Bagchi

No 16-263, Upjohn Working Papers from W.E. Upjohn Institute for Employment Research

Abstract: I examine if the positive correlation between wealth and survivorship has any implications for the progressivity of Social Security’s current benefit-earnings rule. Using a general-equilibrium macroeconomic model calibrated to the U.S. economy, I show that the optimal benefit-earnings link for Social Security 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 unfavorable earnings histories, and therefore lower savings and 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 optimal benefit-earnings rules both with and without differential mortality.

Keywords: differential mortality, Social Security, mortality risk, labor income risk, incomplete markets, social insurance; general equilibrium (search for similar items in EconPapers)
JEL-codes: E21 E62 H55 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-age, nep-dge, nep-ias and nep-mac
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Differential mortality and the progressivity of social security (2019)
Working Paper: Differential Mortality and the Progressivity of Social Security (2016)
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