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http://ssrn.com/abstract=495788
 
 

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Social Security and Unsecured Debt


Erik Hurst


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Paul Willen


Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

February 2004

NBER Working Paper No. w10282

Abstract:     
Most young households simultaneously hold both unsecured debt on which they pay an average of 10 percent interest and social security wealth on which they earn less than 2 percent. We document this fact using data from the Panel Study of Income Dynamics. We then consider a life-cycle model with optimizing and rule-of-thumb' households and explore ways to reduce this inefficiency. We show that both allowing households to use social security wealth to pay off debt and exempting young households from social security contributions (but in both cases requiring higher contributions later later in life) leads to increases in welfare for both types of households and significant increases in consumption and saving, and reductions in debt, for optimizing households.

Number of Pages in PDF File: 57

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Date posted: February 1, 2004  

Suggested Citation

Hurst, Erik and Willen, Paul, Social Security and Unsecured Debt (February 2004). NBER Working Paper No. w10282. Available at SSRN: http://ssrn.com/abstract=495788

Contact Information

Erik Hurst (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Paul Willen
Federal Reserve Bank of Boston - Research Department ( email )
600 Atlantic Avenue
Boston, MA 02210
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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