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Life-Cycle Welfare Costs of Social Security

Author

Listed:
  • Richard V. Burkhauser

    (Vanderbilt University)

  • John A. Turner

    (U.S. Department of Labor)

Abstract

One-period models predict that a substantial welfare gain would result from removing the social security earnings test. In this article, we show that such models overestimate the size of potential gains. If one uses instead a two-period model, which captures intertemporal effects, the net result of removing the earnings test is ambiguous. In the presence of a personal income tax, workers who reduce their labor supply in the first period create a welfare loss which must also be considered. We use a present value model to estimate the change in lifetime welfare. We find that the net potential gain from removing the earnings test is probably small, especially when compared to the alternative of an increased personal income tax.

Suggested Citation

  • Richard V. Burkhauser & John A. Turner, 1981. "Life-Cycle Welfare Costs of Social Security," Public Finance Review, , vol. 9(2), pages 123-142, April.
    • Handle: RePEc:sae:pubfin:v:9:y:1981:i:2:p:123-142
    DOI: 10.1177/109114218100900201
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    References listed on IDEAS

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    Cited by:

    1. Alan S. Caniglia, 1984. "Intertemporal Effects, Intertemporal Suitability, and the Analysis of In-Kind Subsidy Programs," Public Finance Review, , vol. 12(4), pages 395-406, October.

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