Distributional Impacts of Proposed Changes to the Social Security System

53 Pages Posted: 27 Mar 1999 Last revised: 12 Oct 2010

See all articles by Julia Lynn Coronado

Julia Lynn Coronado

Federal Reserve Board - Division of Research and Statistics

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Thomas Glass

Glass & Company, CPAs

Date Written: March 1999

Abstract

In this paper we assess the degree to which the current social security system redistributes income from rich to poor. We then estimate the impact of various proposed changes to social security on the overall redistributive effect of the system. Our analysis takes a steady state approach in which we assume participants work their entire lives and retire under a given system. Redistribution is measured on a lifetime basis using estimated earnings profiles for a sample of people taken from the PSID. We account for differential mortality, not only by gender and race, but also be lifetime income. Our results indicate that the current social security system redistributes less than is generally perceived, mainly because people with higher lifetime income live longer and therefore draw benefits longer. Remaining progressivity is reduced and even reversed by an increase in the assumed discount rate, since regressive taxes become more important relative to later progressive benefits. We find that many of the proposed changes to social security have surprising little effect on the redistribution inherent in the system.

Suggested Citation

Coronado, Julia Lynn and Fullerton, Don and Glass, Thomas W., Distributional Impacts of Proposed Changes to the Social Security System (March 1999). NBER Working Paper No. w6989. Available at SSRN: https://ssrn.com/abstract=153288

Julia Lynn Coronado (Contact Author)

Federal Reserve Board - Division of Research and Statistics ( email )

Washington, DC 20551
United States
202-452-3044 (Phone)
202-872-4927 (Fax)

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Thomas W. Glass

Glass & Company, CPAs ( email )

500 W 5th St
Suite 1210
Austin, TX 78701
United States

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