九版英文財政學教學課件chap011

1、Social Security Expenditures(1939-2007)Source: Social Security Trustees 2008.Why Have Social Security?Consumption Smoothing and the Annuity MarketHow Social Security worksAnnuityConsumption smoothingAdverse Selection and the Annuity MarketAsymmetric informationAdverse selectionOther JustificationsLa

2、ck of foresight and paternalismMoral hazardEconomize on decision-making and administrative costsIncome RedistributionImprove the Economic Status of the AgedFully Funded PlanPeriod 1Period 2Period 3Period 4contributebenefitscontributebenefitscontributebenefitsThe GreatestGenerationThe Baby BoomGenera

3、tionGeneration XWorkRetireDeadUnbornWorkWorkRetireStillDeadDeadChildhoodChildhoodRetireEach generations benefits based on deposits it made during working life plus accumulated interestPeriod 1Period 2Period 3Period 4The GreatestGenerationThe Baby BoomGenerationGeneration XWorkRetireDeadUnbornWorkWor

4、kRetireStillDeadDeadChildhoodChildhoodRetirecontributebenefitscontributebenefitscontributebenefitsbenefitsPay As You Go (or Unfunded) System0Period 1Period 2Period 3Period 4The GreatestGenerationThe Baby BoomGenerationGeneration XWorkRetireDeadUnbornWorkWorkRetireStillDeadDeadChildhoodChildhoodRetir

5、econtributebenefitscontributebenefitscontributebenefitsbenefitsTodays Partially Funded System0Baby Boomers and Gen X are also contributing to their own retirementExplicit TransfersBenefits for dependents and survivors (1939)Supplemental Security IncomeBenefitsHow to calculate benefitsAIME (Average I

6、ndexed Monthly Earnings) average monthly earnings in 35 highest paid yearsWages indexed for inflationCeiling on AIME up to tax ceiling0Benefit StructureIf AIME $711 PIA = .90*AIMEIf $711 AIME $4288 PIA = .90*$711 + .32*($4288-$711) + .15*(AIME - $4288) SecondBreak PointFirstBreak PointAdjustmentsAnn

7、ual inflation adjustmentAge at which benefit is drawnNormal retirement ageEarly retirement benefit reduced 5/9th of one percent a month for first 36 months preceding normal retirement ageLate retirement benefit increased 8% a year0AdjustmentsFamily Status+50% for spouse or dependent childIf covered

8、worker dies spouse receives 100% of workers benefit or spouses own benefit (whichever is higher)Divorced spouse married at least 10 years gets spouse benefit if not remarried while covered worker aliveEarnings test and taxing benefitsBenefits reduced $1 for every $2 earned above $14,160Individuals l

9、osing benefits may have later benefits increasedUp to 85% of benefits taxed for recipients with income above a base amount ($25,000 for single and $32,000 for married taxpayers.)FinancingFICA (Federal Insurance Contribution Act)2008 Social Security Tax ratesEmployee6.2% (OASI - 5.6%, DI - .6%) of fi

10、rst $102,000 of earnings on both employee and employerSelf-employed 12.4%2008 Medicare Tax rates1.45% on both employer and employee with no earnings ceilingWhy not fund Social Security through general tax revenues?0Distributional IssuesActuarially fair returnIntergenerational redistributionTotal ben

11、efits = Nb * BTotal taxes = t * Nw * wIf total benefits = total taxes:Nb * B = t * Nw * w orB = t * (Nw/Nb) * wIda Mae Fuller 0Ida Mae FullerSocial Security Wealth: Representative IndividualsSource: Updated tables, furnished by C. Eugene Steuerle and Adam Carasso, 2006. See C. Eugene Stueuerle and J

12、on M. Bakija 1994 for original tables and methodology. All values expressed in 2006 dollars.Other Distributional IssuesRedistribution within a generationDifferences by earningsDifferences by lifespanDifferences by living arrangementsDifferences by number of earners in the familyNormative evaluationT

13、he Social Security Trust FundSocial Security and National SavingBudget Treatment of Social SecurityOff budgetUnified budgetWorkerRetireeTrust Fund0Social Security and Savings BehaviorLife-cycle theory of savingsWealth Substitution EffectRetirement EffectBequest EffectBudget Constraint for Present an

14、d Future ConsumptionPresent consumption (c0)Future consumption (c1)NMI0I1DI0 - SI1 + (1+r) SS(1+r)SI1 - (1+r) BFB(1+r)BAt endowment point consumer neither saves nor borrowsUtility-maximizing Choice of Present and Future ConsumptionPresent consumption (c0)Future consumption (c1)NMI0I1E1c1*Ac0*SavingC

15、rowding out of private saving due to Social SecurityPresent consumption (c0)Future consumption (c1)NMI0I1E1c1*Ac0*RTI0T(1+r)TSaving before Social SecuritySaving after Social SecurityEmpirical Evidence: Does Social Security Reduce Saving?Time-series evidenceMartin Feldstein (1974, 1996) v Leimer and

16、Lesnoy (1982)Cross-section evidenceEvidence from other countriesAttanasio and Brugiavini (2003) and ItalyOther ways Social Security Affects SavingRetirement effectBequest effectEmpirical evidenceDistribution of WealthBequeathable vs. Annuitized WealthEffect of Social Security on Bequeathable WealthE

17、ffect on Wealth MobilityRetirement DecisionsSocial Security wealth and the retirement decisionEmpirical evidenceDiamond and Gruber 199Gruber and Wise 2004Long-Term Stresses on Social SecuritySource: Social Security Trustees 2006Projected revenues and projected costs of Social Security as share of Gross Domestic ProductLong-Term Stresses on Social SecuritySince: B = t * (Nw/Nb) * wRearrange: t = (Nw/Nb) * (B/w)Dependency RatioReplacement RatioSocial Security ReformTime horizon for solvencySustainable solvencyMaintain the Current SystemRaise the payroll taxRaise the Maximum Taxable Earnings