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Welfare Implications of Uncertain Social Security Reform

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  • Jaeger Nelson

Abstract

Policy uncertainty is a type of aggregate risk that has important economic and welfare implications. In this article, I develop a simple general equilibrium overlapping generations model in which households are uncertain as to the type and timing of an inevitable Social Security reform. I document how households’ expectations over the path of future policy influences their behavior. I find that the economic and welfare effects of policy uncertainty are highly sensitive to households’ beliefs over the path of future policy.

Suggested Citation

  • Jaeger Nelson, 2020. "Welfare Implications of Uncertain Social Security Reform," Public Finance Review, , vol. 48(4), pages 425-466, July.
    • Handle: RePEc:sae:pubfin:v:48:y:2020:i:4:p:425-466
    DOI: 10.1177/1091142120923640
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    References listed on IDEAS

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    1. Liebman, Jeffrey B. & Luttmer, Erzo F.P. & Seif, David G., 2009. "Labor supply responses to marginal Social Security benefits: Evidence from discontinuities," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1208-1223, December.
    2. Jeffrey B. Liebman & Erzo F. P. Luttmer, 2015. "Would People Behave Differently If They Better Understood Social Security? Evidence from a Field Experiment," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 275-299, February.
    3. Mastrobuoni, Giovanni, 2011. "The role of information for retirement behavior: Evidence based on the stepwise introduction of the Social Security Statement," Journal of Public Economics, Elsevier, vol. 95(7), pages 913-925.
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    6. Erzo F. P. Luttmer & Andrew A. Samwick, 2018. "The Welfare Cost of Perceived Policy Uncertainty: Evidence from Social Security," American Economic Review, American Economic Association, vol. 108(2), pages 275-307, February.
    7. Jaeger Nelson & Kerk Phillips, 2019. "Macroeconomic Effects of Reducing OASI Benefits: A Comparison of Seven Overlapping-Generations Models," National Tax Journal, National Tax Association;National Tax Journal, vol. 72(4), pages 671-692, December.
    8. Libor Dusek, 2007. "Political Risk of Social Security: The Case of the Indexation of Benefits in the Czech Republic," CERGE-EI Working Papers wp318, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    9. van der Wiel, Karen, 2008. "Preparing for Policy Changes: Social Security Expectations and Pension Scheme Participation," IZA Discussion Papers 3623, Institute of Labor Economics (IZA).
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    11. Caliendo, Frank N. & Gorry, Aspen & Slavov, Sita, 2019. "The cost of uncertainty about the timing of Social Security reform," European Economic Review, Elsevier, vol. 118(C), pages 101-125.
    12. Jeffrey B. Liebman & Erzo F. P. Luttmer, 2012. "The Perception of Social Security Incentives for Labor Supply and Retirement: The Median Voter Knows More Than You'd Think," Tax Policy and the Economy, University of Chicago Press, vol. 26(1), pages 1-42.
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    Cited by:

    1. Erin Cottle Hunt & Frank N. Caliendo, 2024. "Dynamic Optimization with Timing Risk," Mathematics, MDPI, vol. 12(17), pages 1-18, August.
    2. Erin Cottle Hunt & Frank N. Caliendo, 2022. "Social security and risk sharing: A survey of four decades of economic analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1591-1609, December.
    3. Erin Cottle Hunt & Frank N. Caliendo, 2020. "Social Security reform: three Rawlsian options," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(6), pages 1582-1607, December.

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