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Southern Economic Association Annual Meeting - Distributional Effects of Social Security

  • Marriott Harbor Beach Resort & Spa 3030 Holiday Drive Fort Lauderdale, FL, 33316 United States (map)

PWBM’s Jagadeesh Gokhale will present the paper Distributional Analysis of Social Security Policy Alternatives.

You can register to attend and learn more about the 3 day long conference here.

Distributional Analysis of Social Security Policy Alternatives

Abstract: The financial shortfalls projected for the federal Social Security program will necessitate reforms to its tax and benefit policies. Its near-comprehensive coverage means that most individuals’ personal finances will be affected by changes to the program. This paper uses PWBM’s integrated model of the U.S. economy to compare several measures of the distributional effects of Social Security policy changes. For several tax and benefit side Social Security reforms, this paper compares three distributional metrics:  First, it reports the “formula measure:” Each reform’s effect on the Social Security lifetime net tax rates (LNTR) of scaled low, medium, high, and maximum lifetime earners is calculated for selected years of birth. These earnings levels are calibrated using economy-wide historical and projected average wages from PWBM’s integrated model. The LNTR measure divides the present value of Social Security net taxes – taxes minus benefits during each year of life discounted at a mortality-adjusted interest rate – by the present value of earnings through Social Security’s normal retirement age. Next, it reports a “static distributional measure” which calculates LNTRs for selected population subgroups by birth-year, gender, race, and triciles of lifetime (present valued) earnings using PWBM’s microsimulation. Finally, it reports the “equivalent variation” welfare change measure for each reform by birth year and triciles of earnings using the PWBM integrated model, which accounts for individuals’ economic responses to each Social Security reform measure.