The Distributional Impact of Social Security

39 Pages Posted: 7 Jul 2004 Last revised: 28 Feb 2021

See all articles by Michael D. Hurd

Michael D. Hurd

RAND Corporation; State University of New York at Stony Brook - College of Arts and Science - Department of Economics; National Bureau of Economic Research (NBER)

John B. Shoven

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 1983

Abstract

In the first part of the paper we report estimated transfers in the Social Security system for the Retirement History Survey sample.We define transfers to be the difference between the expected presentvalue of benefits less the present value of taxes paid in, where the latter is adjusted for the probability of living to reach retirement age.Unlike previous researchers we, therefore, account for the taxes paid by people who died before retirement, and it turns out this adjustment is important for some groups. The Retirement History Survey cohort will receive large transfers: roughly benefits will be about four times taxes,and the real internal rate of return will be about eight percent. We study how transfers vary by a comprehensive measure of wealth. People in the highest wealth quartile have the largest absolute transfers, and their internal rate of return is as high as that of any wealth quartile.In the second part of the paper we study transfers forsix synthetic cohorts, the heads of which are age 65 in the ten-year intervals 1970 through 2020. Within each cohort 12 families are defined according to earnings levels.We find that transfers are positive and large for the 1970 cohort, and that they decline steadily until they are negative for most groups in the 2020 cohort. Although high earners initially have the largest transfers in the 1970 cohort, they have the largest negative transfers in the 2020 cohort.

Suggested Citation

Hurd, Michael D. and Shoven, John B., The Distributional Impact of Social Security (June 1983). NBER Working Paper No. w1155, Available at SSRN: https://ssrn.com/abstract=305539

Michael D. Hurd (Contact Author)

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John B. Shoven

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