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Fiscal Effects of Social Security Reform in the United States


Courtney Coile


Wellesley College - Department of Economics; National Bureau of Economic Research (NBER)

Jonathan Gruber


Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

April 2003

Boston College Center for Retirement Research Working Paper No. 2003-05

Abstract:     
Social Security is the largest social insurance program in the U.S., and has been shown to be a major determinant of the labor supply decisions of older workers. As such, reforming the Social Security system can have two fiscal impacts: a "mechanical" effect through changing the rules on benefits entitlements or taxation, and a "behavioral" effect through individual responses to these changes in benefits or taxes. We build a simulation model that computes these effects for major reforms to the system, building on estimated retirement responses to changing net Social Security entitlements. We then estimate the fiscal impact of reform for the 1931-1941 cohort of workers represented by the Health and Retirement Survey. We find that raising the early and normal retirement age by three years would reduce net costs for this cohort by roughly 30%, and that moving to a much higher benefit level would raise net costs by roughly 55%. Importantly, we find that in both cases the behavioral impacts on net costs are relatively small, at most one-third, and generally less than one-fifth of the total. The reason for these small effects is that the U.S. Social Security system is roughly actuarially fair, so that delaying or inducing retirement has relatively little impact on system balances; most of the effects that do arise are due to changes in general income and consumption taxes.

Number of Pages in PDF File: 45

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Date posted: May 30, 2003  

Suggested Citation

Coile, Courtney and Gruber, Jonathan, Fiscal Effects of Social Security Reform in the United States (April 2003). Boston College Center for Retirement Research Working Paper No. 2003-05. Available at SSRN: http://ssrn.com/abstract=394780 or http://dx.doi.org/10.2139/ssrn.394780

Contact Information

Courtney Coile (Contact Author)
Wellesley College - Department of Economics ( email )
106 Central Street
Wellesley, MA 02181
United States
781-283-2408 (Phone)
781-283-2177 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jonathan Gruber
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
Room E52-355
Cambridge, MA 02142
United States
617-253-8892 (Phone)
617-253-1330 (Fax)
HOME PAGE: http://web.mit.edu/gruberj/www/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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