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Briefing
Lifespan Inequality and Social Security Reform
What does lifespan inequality mean for Social Security reform? Using a life-cycle model in which the rich tend to outlive the poor, the researchers analyze how various reforms affect the trade-off between distributing lifetime Social Security benefits more equally and encouraging society's most productive members to work longer. They find that social welfare is maximized when benefits are independent of lifetime earnings, the payroll tax cap remains near its current level, and benefits are made less dependent on the age at which they are initially claimed.
Working Paper
The Effects of Collecting Income Taxes on Social Security Benefits
Since 1983, Social Security benefits have been subject to income taxation, a provision that can significantly increase the marginal income tax rate for older individuals. To assess the impact of this tax, we construct and calibrate a detailed life-cycle model of labor supply, saving, and Social Security claiming. We find that in a long-run stationary environment, replacing the taxation of Social Security benefits with a revenue-equivalent increase in the payroll tax would significantly increase labor supply, consumption and welfare. From an ex-ante perspective an even more desirable reform ...
Briefing
How Well Insured Are Older Americans?
Using a combination of survey and administrative data, we calculate the portion of medical expenditures that retirees pay out of pocket. We find that retirees are mostly well insured against medical spending risk, with over 80 percent of their spending covered by Medicare, Medicaid or other insurers. We also find, however, that individuals with extremely high medical expenses pay a larger — not smaller — share out of pocket than those with more average expenses. Much of this difference is attributable to nursing home stays, which are typically uncovered by most insurers.
Working Paper
Health, Health Insurance, and Retirement: A Survey
The degree to which retirement decisions are driven by health is a key concern for both academics and policymakers. In this paper we survey the economic literature on the health-retirement link in developed countries. We describe the mechanisms through which health affects labor supply and discuss how they interact with public pensions and public health insurance. The historical evidence suggests that health is not the primary source of variation in retirement across countries and over time. Furthermore, declining health with age can only explain a small share of the decline in employment ...
Working Paper
The effects of health insurance and self-insurance on retirement behavior
Using an estimable dynamic programming model of retirement behavior, this paper assesses the relative importance of Medicare and Social Security in determining job exit rates at age 65. Of central importance is whether individuals value health insurance benefits not just for the reduction in average medical expenses, but also for the reduction in the volatility of medical expenses. To address this problem the model accounts explicitly for the effects of health cost volatility and health insurance on retirement behavior. By including a savings decision within the model, we allow for the ...
Working Paper
Financial liberalization and banking crises in emerging economies
In this paper, we provide a theoretical explanation of why financial liberalization is likely to generate financial crises in emerging market economies. We first show that under financial repression the aggregate capital stock and bank net worth are both likely to be low. This leads a newly liberalized bank to be highly levered, because the marginal product of capitaland thus loan interest ratesare high. The high returns on capital, however, also make default unlikely, and they encourage the bank to retain all of its earnings. As the banks net worth grows, aggregate capital rises, the ...
Working Paper
Public pensions and labor supply over the life cycle
Virtually all developed countries face projected budget shortfalls for their public pension programs. The shortfalls arise for two reasons. First, populations in developed countries are aging rapidly. Second, until recently older individuals in developed countries have been retiring earlier. These two developments have created serious strains on public pension programs. In order to remain fiscally solvent, many governments have reformed their public pension schemes to encourage labor supply at older ages. These reforms include reductions in the generosity of public pensions and reduced ...
Briefing
Portfolios Across the U.S. Wealth Distribution
In this article, we examine how household portfolios vary with wealth, age and race. Households in the middle of the wealth distribution hold most of their wealth as real estate, while wealthier households are more heavily invested in stocks and private business equity. As households age, they repay education loans and other debt and accumulate real estate and (to a lesser extent) financial assets. We find that Black households hold considerably less home equity, stocks and business equity. This can be explained (statistically) by lower levels of total wealth and by differences in age and ...
Briefing
A More Comprehensive Measure of the Black-White Wealth Gap
In this article, we apply a simple graphical device — the plot of the relative rank distribution — to summarize the Black-White wealth gap. We also introduce the relative rank Gini coefficient — an analog to the standard Gini coefficient — as a summary measure of rank inequality. We find that the rank wealth gap is widest in the middle of the wealth distribution. Black-White rank wealth gaps are higher among college graduates than among other education groups. Households with young or retired heads have higher rank gaps than middle-aged households. We caution that rank gaps are not ...