Net Intergenerational Transfers from an Increase in Social Security Benefits

Levy Economics Institute Working Paper No. 482

17 Pages Posted: 4 Dec 2006

See all articles by Guan Gong

Guan Gong

University of Texas at Austin - Department of Economics

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)

Date Written: November 2006

Abstract

When the age of death is uncertain, individuals will leave bequests - even if they have no desired bequests - simply because they will hold wealth against the possibility of living longer. Bequests are accidental. Starting from a baseline level of Social Security benefits, an increase in benefits will cause consumption to increase. However, consumption may not increase by as much as the increase in Social Security, which would cause wealth to be greater than under the baseline scenario. The higher wealth levels would translate into greater bequests. Therefore, an increase in Social Security benefits may not be a complete transfer from the younger generation to the older generation: some of the increase in benefits may be bequeathed back to the younger generation. Whether this happens depends on the form of the utility function, the amount of bequeathable wealth, and whether there is a bequest motive. The objective of this paper is to quantify for single persons how much of an increase in Social Security benefits would be bequeathed back to the younger generation. We find that, at least for singles, increases in Social Security benefits are unlikely to be offset by bequests.

Keywords: Bequests, Social Security

JEL Classification: E21, H55

Suggested Citation

Gong, Guan and Hurd, Michael D., Net Intergenerational Transfers from an Increase in Social Security Benefits (November 2006). Levy Economics Institute Working Paper No. 482, Available at SSRN: https://ssrn.com/abstract=948488 or http://dx.doi.org/10.2139/ssrn.948488

Guan Gong (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

Michael D. Hurd

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States
310-393-0411 (Phone)
310-393-4818 (Fax)

State University of New York at Stony Brook - College of Arts and Science - Department of Economics ( email )

Stony Brook, NY 11794
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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