Sustainable Social Security: Four Options

Kitao, Sagiri

doi:10.2139/ssrn.1906742

Cited by 59 publications

(112 citation statements)

References 19 publications

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“…To model these features of the U.S. Social Security system, we proceed in three steps. First, following Huggett and Parra () and Kitao (), we calculate the model analog of each worker's average level of labor earnings over the working life cycle. At every age, the average accumulated earnings follow the law of motion:

x_{j + 1} = \{\begin{matrix} left \frac{\min {y_{j}, \bar{y}} + (j - 1) x_{j}}{j} & left if & left j \leq 35, \\ left \max ({}, x_{j}, \frac{\min {y_{j}, \bar{y}} + (j - 1) x_{j}}{j}) & left if & left 35 < j < R, \\ left x_{j} & left if & left j \geq R, \end{matrix}

where

x_{j}

is the accounting variable capturing the average of earnings before the retirement age R , and

\bar{y}

is the maximum allowable level of labor earnings subject to the Social Security tax that corresponds to the benefit‐contribution cap.…”

Section: Modelmentioning

confidence: 99%

“…At every age, the average accumulated earnings follow the law of motion:

x_{j + 1} = \{\begin{matrix} left \frac{\min {y_{j}, \bar{y}} + (j - 1) x_{j}}{j} & left if & left j \leq 35, \\ left \max ({}, x_{j}, \frac{\min {y_{j}, \bar{y}} + (j - 1) x_{j}}{j}) & left if & left 35 < j < R, \\ left x_{j} & left if & left j \geq R, \end{matrix}

where

x_{j}

is the accounting variable capturing the average of earnings before the retirement age R , and

\bar{y}

is the maximum allowable level of labor earnings subject to the Social Security tax that corresponds to the benefit‐contribution cap. To infuse an additional degree of realism while maintaining the model's tractability, we follow Kitao () and introduce a rule to ensure that the average accumulated labor earnings,

x_{j}

, cannot fall below their previously realized level,

x_{j - 1}

, after 35 working periods . Moreover, since agents are not allowed to work during their retirement, which is assumed to be an absorbing state,

x_{j}

is constant at

j = R

.…”

Section: Modelmentioning

confidence: 99%

“…The final strand of the literature examines the effect on the economy of reforming the current Social Security program. Examples of these studies include Conesa and Krueger (), Huggett and Ventura (), Huggett and Parra (), Olovsson (), Imrohoroglu and Kitao (), and Kitao (). Among these papers, Olovsson () examines the welfare gains of a Social Security program that efficiently shares aggregate risks between generations.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

How Well Did Social Security Mitigate the Effects of the Great Recession?

Peterman

Sommer

2019

Int Economic Review

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Using a computational life cycle model, this article assesses how Social Security affects the welfare of different types of individuals during the Great Recession. Overall, we find that Social Security reduces the average welfare losses for agents alive at the time of the Great Recession by the equivalent of 1.4% of expected future lifetime consumption. Moreover, we show that although the program mitigates some of the welfare losses for most agents, it is particularly effective at mitigating the losses for agents who are poorer and/or older at the time of the shock.

show abstract

x_{j + 1} = \{\begin{matrix} left \frac{\min {y_{j}, \bar{y}} + (j - 1) x_{j}}{j} & left if & left j \leq 35, \\ left \max ({}, x_{j}, \frac{\min {y_{j}, \bar{y}} + (j - 1) x_{j}}{j}) & left if & left 35 < j < R, \\ left x_{j} & left if & left j \geq R, \end{matrix}

where

x_{j}

is the accounting variable capturing the average of earnings before the retirement age R , and

\bar{y}

is the maximum allowable level of labor earnings subject to the Social Security tax that corresponds to the benefit‐contribution cap.…”

Section: Modelmentioning

confidence: 99%

“…At every age, the average accumulated earnings follow the law of motion:

x_{j + 1} = \{\begin{matrix} left \frac{\min {y_{j}, \bar{y}} + (j - 1) x_{j}}{j} & left if & left j \leq 35, \\ left \max ({}, x_{j}, \frac{\min {y_{j}, \bar{y}} + (j - 1) x_{j}}{j}) & left if & left 35 < j < R, \\ left x_{j} & left if & left j \geq R, \end{matrix}

where

x_{j}

is the accounting variable capturing the average of earnings before the retirement age R , and

\bar{y}

x_{j}

, cannot fall below their previously realized level,

x_{j - 1}

, after 35 working periods . Moreover, since agents are not allowed to work during their retirement, which is assumed to be an absorbing state,

x_{j}

is constant at

j = R

.…”

Section: Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

How Well Did Social Security Mitigate the Effects of the Great Recession?

Peterman

Sommer

2019

Int Economic Review

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show abstract

“…Both studies report that means testing increases welfare. In a recent paper, Kitao () analyses various social security reform proposals including means testing of benefits and shows that although means testing can serve as a useful tool from a budget‐balancing standpoint, it yields the worst labour disincentives, especially among the elderly. In contrast, Cremer et al .…”

Section: Introductionmentioning

confidence: 99%

A Note on Means Testing and Temptation

Kumru

Piggott

Thanopoulos

2019

J of App Econs and Policy

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This study analyses the relative performance in terms of welfare of the current US PAYG system compared to an array of cost equivalent alternative specifications of means‐tested pension programmes. We conduct our analysis under two different settings. While in the first setting, individuals have standard preferences; in the second setting, individuals have self‐control preferences. We show that the implications of the reform substantially differ across the two settings.

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“… Instead of studying the adoption or elimination of the program, Olovsson () and Kitao () considered a transition to a reformed system, so the welfare consequences and transitional dynamics from these studies are not as comparable to our exercise. …”

mentioning

confidence: 99%

A historical welfare analysis of Social Security: Whom did the program benefit?

Peterman

Sommer

2019

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A well‐established result in the literature is that Social Security reduces steady state welfare in a standard life cycle model. However, less is known about the historical quantitative effects of the program on agents who were alive when the program was adopted. In a computational life cycle model that simulates the Great Depression and the enactment of Social Security, this paper quantifies the welfare effects of the program's enactment on the cohorts of agents who experienced it. In contrast to the standard steady state results, we find that the adoption of the original Social Security generally improved these cohorts' welfare, in part because these cohorts received far more benefits relative to their contributions than they would have received if they lived their entire life in the steady state with Social Security. Moreover, the negative general equilibrium welfare effect of Social Security associated with capital crowd‐out was reduced during the transition, because it took many periods for agents to adjust their savings levels in response to the program's adoption. The positive welfare effect experienced by these transitional agents offers one explanation for why the program that may reduce welfare in the steady state was originally adopted.

show abstract

Sustainable Social Security: Four Options

Cited by 59 publications

References 19 publications

How Well Did Social Security Mitigate the Effects of the Great Recession?

How Well Did Social Security Mitigate the Effects of the Great Recession?

A Note on Means Testing and Temptation

A historical welfare analysis of Social Security: Whom did the program benefit?

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