Means testing and Social Security in the United States
Abstract This paper uses a heterogeneous‐agent overlapping‐generations model to examine the fiscal and distributional consequences of introducing a means test in US Social Security. I find that a means test, that is, conditioning benefit payments on a household's earnings or assets, leads to a...
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| Format: | Article |
| Language: | English |
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Wiley
2024-03-01
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| Series: | International Studies of Economics |
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| Online Access: | https://doi.org/10.1002/ise3.67 |
| _version_ | 1797276905218506752 |
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| author | Shantanu Bagchi |
| author_facet | Shantanu Bagchi |
| author_sort | Shantanu Bagchi |
| collection | DOAJ |
| description | Abstract This paper uses a heterogeneous‐agent overlapping‐generations model to examine the fiscal and distributional consequences of introducing a means test in US Social Security. I find that a means test, that is, conditioning benefit payments on a household's earnings or assets, leads to a higher implicit tax on old‐age resources, but has desirable distributional effects. A 75% cut in the benefits to households with earnings of more than 200% of the median leads to a 2.3% reduction in the overall size of Social Security, but has almost no effect on average dollar benefits. In contrast, a fiscally comparable payroll tax cut leads to an across‐the‐board decline of 2% in the average dollar benefits, despite an increase in capital and labor. A fiscally comparable delay in the benefit eligibility age increases benefits for all, but negatively affects capital and labor. Finally, an asset‐based means test causes a decline of 1% in the average dollar benefits, but has a large negative effect on capital and the accidental bequests left behind by deceased households. |
| first_indexed | 2024-03-07T15:35:09Z |
| format | Article |
| id | doaj.art-c2740b1344ea4638852c75ce0ba7b332 |
| institution | Directory Open Access Journal |
| issn | 2831-3224 |
| language | English |
| last_indexed | 2024-03-07T15:35:09Z |
| publishDate | 2024-03-01 |
| publisher | Wiley |
| record_format | Article |
| series | International Studies of Economics |
| spelling | doaj.art-c2740b1344ea4638852c75ce0ba7b3322024-03-05T11:42:14ZengWileyInternational Studies of Economics2831-32242024-03-01191689110.1002/ise3.67Means testing and Social Security in the United StatesShantanu Bagchi0Department of Economics Towson University Towson Maryland USAAbstract This paper uses a heterogeneous‐agent overlapping‐generations model to examine the fiscal and distributional consequences of introducing a means test in US Social Security. I find that a means test, that is, conditioning benefit payments on a household's earnings or assets, leads to a higher implicit tax on old‐age resources, but has desirable distributional effects. A 75% cut in the benefits to households with earnings of more than 200% of the median leads to a 2.3% reduction in the overall size of Social Security, but has almost no effect on average dollar benefits. In contrast, a fiscally comparable payroll tax cut leads to an across‐the‐board decline of 2% in the average dollar benefits, despite an increase in capital and labor. A fiscally comparable delay in the benefit eligibility age increases benefits for all, but negatively affects capital and labor. Finally, an asset‐based means test causes a decline of 1% in the average dollar benefits, but has a large negative effect on capital and the accidental bequests left behind by deceased households.https://doi.org/10.1002/ise3.67accidental bequestsincomplete marketslabor income riskmeans testmortality riskSocial Security |
| spellingShingle | Shantanu Bagchi Means testing and Social Security in the United States International Studies of Economics accidental bequests incomplete markets labor income risk means test mortality risk Social Security |
| title | Means testing and Social Security in the United States |
| title_full | Means testing and Social Security in the United States |
| title_fullStr | Means testing and Social Security in the United States |
| title_full_unstemmed | Means testing and Social Security in the United States |
| title_short | Means testing and Social Security in the United States |
| title_sort | means testing and social security in the united states |
| topic | accidental bequests incomplete markets labor income risk means test mortality risk Social Security |
| url | https://doi.org/10.1002/ise3.67 |
| work_keys_str_mv | AT shantanubagchi meanstestingandsocialsecurityintheunitedstates |